The Fed Says: Housing Recovery Slows, Economy Grows

The Federal Open Market Committee (FOMC) of the Federal Reserve issued its scheduled statement after its March 19th meeting. The statement highlighted improvements in labor markets, but said that the housing recovery had slowed. In general, FOMC members viewed the economy as strong enough to continue tapering the Fed's monthly purchase of mortgage-backed securities (MBS) and Treasury Bonds.

The Fed will purchase $55 billion in assets in April, down from this months purchase of $65 billion. FOMC has tapered its asset purchases by $10 billion per month since it announced that asset purchases would first be reduced in February.

Recent FOMC statements have repeated the Fed's plan to reduce its asset purchases over time subject to how the economy performs and economic developments as they occur.

FOMC members voted to maintain the target federal funds rate at between 0.00 percent and 0.250 percent and indicated that the target rate will likely remain unchanged for some time after the asset purchase program stops.

The asset purchase program and decisions related to the target federal funds rate represent the Fed's dual approach to economic stimulus, also called quantitative easing, in the aftermath of the recession.

Mortgage Rates: How Does Economic Stimulus Help?

The financial markets' sometimes volatile responses to Federal Reserve announcements not withstanding, the Fed's asset purchases were implemented to hold down long-term interest rates, which include mortgage rates.

The Fed's self-described "highly accommodative monetary policy" is tasked with providing a user-friendly economic environment that supports labor markets and general economic conditions. The FOMC expects national unemployment to fall to 6.30 percent or lower by the end of 2014. The committee had established a national unemployment rate of 6.50 percent as a benchmark for raising its target federal funds rate, but removed that criterion due to unemployment rates falling faster than expected.

The Federal Reserve's monetary policy is designed to achieve its mandate of achieving maximum employment within the context of price stability. If the Fed's economic stimulus programs wind down too fast, the costs of buying and keeping a home could become unaffordable for more U.S. consumers. If economic stimulus programs stay in place too long, they could further restrict economic growth and hiring.

Neither scenario would benefit housing markets or consumers; this suggests that the FOMC's continued policy of moderate monetary policy decisions is on track to grow the economy at a sustainable. pace.

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