Federal Reserve officials voted almost unanimously to continue tapering the quantitative easing program at their March meetings.
Central bank officials voted, eight to one, to again reduce the rate of bond-buying by $10 billion, bringing the current rate of stimulus to $55 billion in assets purchased per month after a third consecutive Federal Open Market Committee that resulted in scaled-back stimulus.
Following the announcement, recently appointed Chair Janet Yellen addressed the media for the first time in her new post. Yellen referenced the fact that Fed officials believe the economy is stable and generally still in a position to sustain itself, although the housing industry may eventually feel tapering's effects in the form of rising interest rates. With prices having climbed considerably in many metro markets across the country throughout 2013, any interest rate movement has the potential to further impact affordability.
The most recent Freddie Mac Primary Mortgage Market Survey, released for the week ending March 20, revealed that the average 30-year fixed-rate mortgage was 4.32 percent, down slightly from the average of 4.37 percent a week earlier but still up considerably from the 3.54 percent seen a year ago. The average 15-year fixed-rate mortgage, meanwhile, stood at 3.32 percent through the same period. By comparison, 15-year FRMs averaged 3.38 percent the week before and 2.72 percent at the same time in 2013.
HousingWire reported that the latest tapering vote was approved by all committee members with one exception. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, was the lone dissenter.
Keeping the faith
In its March 19 statement, the Fed said indicators were still showing enough progress to warrant a reduced rate of stimulus. The economy is expected to continue its expansion throughout 2014, despite lackluster domestic fundamentals to start the year. Minimal improvement within the labor market - much of which was attributed to harsh winter weather that swept across the Midwest and Northeast - will apparently not sway the Fed from proceeding according to plans with its monetary policy. Yellen alluded to the fact that the previously established 6.5 percent threshold for national unemployment will no longer be used as an exact determinant of the economy's progress. Instead, broader macroeconomic indicators, such as the inflation rate and GDP growth, will play more important roles.
"The FOMC currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions," Yellen said in her address. "In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the committee decided to make a further measured reduction in the pace of its asset purchases."
Yellen was intentionally non-committal about a timeline for how soon interest rates would be raised after tapering was completed. She referred to the central bank's reliance on a "qualitative guidance," an approach not unlike that often employed by her predecessor, Ben Bernanke. She also reaffirmed the Fed's commitment to its 2 percent inflation objective, while noting that there could be little more than six months between the end of stimulus and the time when interest levels are raised. While that unspecific timetable offered little solace for investors, the Fed Chair noted that part of the reason for revising the strategy was a general feeling that the unemployment rate no longer effectively reflected the state of the economy.
"It's very useful…in helping markets understand our expectations in shaping their own," Yellen said. "But as the unemployment rate gets closer to 6.5 percent and to breaching that threshold - markets want to know and the public wants to understand how we will decide what to do. The purpose is to provide more information than we have in the past. As the unemployment rate declines below 6.5 percent we will decide how long to hold [interest rates close to zero percent]."
Resumed activity coming in the spring
The Fed statement only briefly alluded to the housing recovery specifically, noting that its rate of growth remains tepid. But weather is believed to have contributed to the stagnated market growth in December, January and February, when many construction projects were delayed.
"Household spending and business fixed investment continued to advance, while the recovery in the housing sector remained slow," read the Fed release. "Fiscal policy is restraining economic growth, although the extent of restraint is diminishing."
Most expectations are that as the weather returns to normal and the homebuying season kicks into gear, more inventory will emerge on the market both from new projects and by way of more traditional sales. That should, in turn, further calm appreciation rates and ease the burden on prospective buyers, especially first-timers, for whom affordability and mortgage approval are already complicated.