The Federal Reserve has opted to keep its foot on the brakes and not initiate a new increase in the federal funds rate.
“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability,” the Fed said in a statement. “In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric two percent objective as the most likely outcomes.”
However, the Fed also noted that “in light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.”
Mike Fratantoni, Senior Vice President and Chief Economist of the Mortgage Bankers Association (MBA)
, said, “The bigger news from this meeting was the clear signal that the Fed will stop allowing their balance sheet to shrink, and will begin to allow it to grow again starting this fall. Fed officials have noted that they would like to return the balance sheet to primarily Treasury assets, meaning that MBS will continue to roll off, with the proceeds being invested in Treasury securities. The Fed also noted the potential to sell “residual holdings” of MBS at some point, but that they would give plenty of notice before doing so. Over time, these changes could put some upward pressure on mortgage-Treasury spreads–and ultimately–mortgage rates.”