The Federal Reserve, also known as the Fed or the Central Bank of the United States, is often in the headlines when it comes to interest rates. Lenders should know, however, that its primary goal is to promote a strong U.S. economy using monetary policy, with maximum employment, stable prices, and moderate long-term interest rates as goals. (When prices are stable, long-term rates remain at moderate levels, so the goals of price stability and moderate long-term interest rates go together.)
The Fed acts at the direction of the Federal Open Market Committee (FOMC). The FOMC holds eight regularly scheduled meetings during the year, and other meetings as needed. With a nod toward transparency, the minutes of regularly scheduled meetings are released three weeks after the date of the policy decision. It is rare that these minutes move mortgage rates, since actions have already taken place based on the FOMC’s decision, but analysts still pore through them.
The next FOMC meeting isn’t until mid-December, but after its meeting in early November it announced plans to start reducing purchases of securities by $15 billion each month. Federal Reserve Chairman Jerome Powell announced the Fed will begin tapering purchases of mortgage-backed securities (MBS), including bonds. The Fed plans to slow the pace of asset purchases by $15 billion monthly ($10 billion in Treasury securities and $5 billion from MBS), with the possibility of altering that amount depending on the economic recovery. He did not say what factors would warrant changing the pace of tapering, a smart move as economic news can change quickly.