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Fed Seen Buying Mortgage Bonds If More Accommodation Needed
Bloomberg - Jan. 25, 2012 - By Joshua Zumbrun
Federal Reserve policy makers will probably buy mortgage bonds should the economy warrant more easing, with purchases of all debt totaling $500 billion, according to economists in a Bloomberg News survey.
Forty-six percent of economists say a new round of bond buying would consist entirely of mortgage-backed securities, while 35 percent predict it would also include Treasuries. None of the 56 economists in the survey expect the central bank would purchase only Treasuries.
Chairman Ben S. Bernanke said in a Jan. 4 letter to Congress that housing is “blunting” the impact from interest rates near zero and impeding economic growth. By purchasing more mortgage bonds, Bernanke would aim to cut the cost of home loans, spurring refinancing and sales of residential properties. Most economists said they don’t expect the Fed to announce more asset purchases today.
“Housing has been a critical piece of prior recoveries, and the U.S. economy is not likely to achieve sustained above- trend growth without the participation of housing,” said Julia Coronado, chief economist for North America at BNP Paribas in New York.
The Federal Open Market Committee resumed meeting at 8:30 a.m. in Washington and plans to release a policy statement at 12:30 p.m. after a two-day meeting. At 2 p.m., the central bank for the first time will release forecasts from FOMC participants for the main interest rate, and Bernanke at 2:15 p.m. plans to hold a press conference.
Won’t Buy More
Economists are split on whether the Fed will buy more assets, with half saying they don’t expect a third round of so- called quantitative easing at any time, according to the Jan. 18-20 survey. Last month, 51 percent of surveyed economists predicted the Fed won’t engage in more purchases.
Coronado is among those predicting the Fed will take action. “They’re going to need to support the housing markets,” she said. “They’re going to use that rationale to announce a mortgage purchase program” during the second quarter.
Income Security Recommendation February 2012 Issue.
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