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FOMC Statement: Quantitative Easing Tapered by $10 Billion

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FOMC Statement Quantitative Easing Tapered by 10 BillionThe Federal Open Market Committee (FOMC) determined that current economic conditions warranted another $10 billion reduction in the Fed’s asset purchases.

Citing improvements in economic indicators including labor markets and national unemployment, committee members said that further tapering of its quantitative easing (QE) asset purchases was warranted. The Fed will now purchase a total of $35 billion monthly in treasury securities and mortgage-backed securities.

While continued reductions in the Fed’s asset purchases could contribute to rising mortgage rates, the FOMC statement said that the Fed’s “sizeable and still increasing” holdings of long-term securities is expected to hold down long term interest rates including mortgage rates.

The FOMC statement included its standard caveat that reductions to QE purchases are not on a preset course and that committee members will continue close analysis of financial and economic news and conditions as part of decisions to change the volume of QE asset purchases.

Committee Monitoring Unemployment, Inflation

Unemployment remains “elevated” according to the FOMC statement. Committee members said that they will continue to monitor unemployment readings, but committee members expect that overall improvement in economic conditions will continue to justify the current target rate for federal funds at between 0.00 and 0.25 percent.

The FOMC statement notes that this “highly accommodative” policy will likely remain in effect for a considerable period after the QE asset purchases conclude.

Committee members continue to monitor the inflation rate, which remains below the FOMC target rate of 2.00 percent. Noting that inflation persistently below the Fed’s target rate could hamper economic growth, the FOMC said that it expects inflation to move toward its target rate within the medium term.

FOMC Releases Forecasts for Key Indicators

FOMC released a table of its forecasts for certain economic sectors. Highlights include a projected reading of 6.00 to 6.10 percent for national unemployment for 2014, and the rate of inflation for personal consumer expenses at between 1.50 and 1.70 percent for 2014. According to its projections, the Fed’s target inflation rate of 2.00 percent is likely to be reached in 2015 or 2016.

Fed Chair Yellen Gives Press Conference

A major theme of Fed Chair Janet Yellen’s press conference was that there is no set formula for Fed decisions concerning interest rates, inflation and tapering its volume of asset purchases. She cited geopolitical risks including conflicts in Europe and developing civil crisis in Iraq as examples of influences on U.S. financial markets, energy supplies and prices.

Ms. Yellen said that while consumer spending has increased, the Fed wants to see wage growth exceed inflation so that consumers would see an actual increase in their incomes. She also cited the Fed’s target inflation rate of 2.00 percent as important to continued economic recovery.

A wide range of opinions among FOMC members about federal interest rates was mentioned by Ms. Yellen as an example of overall uncertainty about the economy and developing economic trends. She cautioned investors to be mindful of this uncertainty.

Increasing May Jobs Report Shows Strengthening Economy

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Increasing May Jobs Report Shows Strengthening EconomyThe U.S. Department of Labor released its Non-Farm Payrolls and National Unemployment Rate reports Friday showing 175,000 jobs were added in May, which surpassed expectations of 164,000 new jobs and April’s reading of 149,000 jobs added. The jobs added in May were largely from the private sector.

However, the national unemployment rate for May was 7.60 percent, one-tenth of a percent higher than expectations and the April reading of 7.50 percent. The rise was attributed to more people entering the workforce as opposed to people losing jobs.

420,000 workers joined the workforce in May, which pushed the civilian participation rate in the labor market to 63.4 percent; the highest participation rate since October 2012. A rising participation rate suggests that more workers believe they can find jobs and have joined or returned to the labor market.

Economists Pleased With Increasing Jobs In Difficult Environment

Economists were pleased to see jobs increasing against an environment of higher taxes, a soft global economy and budget cutbacks in the U.S. government.

A lingering issue for U.S. labor markets is the number of people looking for full time work, but who are unable to find full-time employment. When these workers are added to the ranks of the unemployed who are actively seeking work, the actual unemployment rate almost doubles to 13.8 percent for May.

The national unemployment rate is based on workers who are actively seeking work. Many U.S. workers stopped looking for work after years of unemployment.

Fed May Review Quantitative Easing Program Soon

These reports don’t provide a clear indication of what the Federal Reserve may do regarding its current monetary policy; the Fed is currently purchasing $85 billion a month in U.S. Treasury bonds and mortgage-backed securities (MBS). This effort is intended to keep long-term interest rates, including mortgage rates, lower.

The Fed has indicated that it will review its quantitative easing (QE) policy relative to improvements in the economy. In recent months, the Federal Open Market Committee of the Federal Reserve (FOMC) has discussed lowering or eliminating its QE efforts, but so far is maintaining its current level of QE and maintaining the federal funds rate at 0.250 percent.

While housing markets are improving, the jobs sector is moving at a slower pace. This suggests that home prices could rise even faster if more consumers had sufficient income for buying a home.

Federal Jobs Report Shows Biggest Increase Since 2008

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Federal Jobs Report Shows Robust Job Growth April 2013The Bureau of Labor Statistics (BLS) issued its Job Openings and Labor Turnover report for February on Tuesday, June 9th, 2013.

The data was mixed with preliminary figures for all non-farm jobs increasing from 3.62 million jobs in January to 3.93 million jobs in February.

This was the highest month-to- month increase in jobs since May 2008. 

Non-farm jobs increased by 399,000 jobs from 3.53 million in February 2012 to 3.93 million jobs in February 2013, an increase of 10.2 percent year-over-year.

More Jobs Means More Opportunities For Home Ownership

More jobs generally means higher incomes and stability which enable more families to buy homes and qualify for mortgage loans.

Hires between January and February 2013 rose from 4.30 million to 4.43 million hires, an increase of 2.70 percent.

Hires between February 2012 and February 2013 fell from 44.9 million to 44.2 million, a decrease of 1.6 percent.

Total non-farm job separations changed little month to month, and remained exactly the same year-over-year at 4.20 million separations.

Numbers of hires and separations surpass job numbers due to workers being hired on and/or separated from more than one job during the reporting period.

Regional Non-Farm Employment Shows Job Growth

  • Northeast: Non-farm jobs fell from 688,000 jobs in January 2013 to 647,000 jobs in February 2013, but increased year-over-year from 589,000 jobs to 647,000 jobs.
  • South:  Non-farm Jobs fell from 1.56 million jobs in January 2013 to 1.50 million jobs in February 2013. Jobs increased year-over-year from 1.34 million jobs in February 2012 to 1.47 million jobs in February 2013.
  • Midwest: Non-farm jobs grew from 712,000 in January 2013 to 780,000 jobs in February 2013 and increased from 740,000 jobs to 780,000 from February 2012 to February 2013.
  • West: Non-farm jobs increased from 806,000 to 830,000 between January and February 2013; on a year-over-year basis, jobs showed noteworthy growth from 650,000 jobs to 830,000 jobs between February 2012 and February 2013.

It’s A Great Time To Buy Or Refinance A Home

Improving labor data indicates that the economy is on the mend, but this could cause mortgage rates and home prices to rise as the economy expands.

A gradual economic recovery suggests that home buyers and others seeking lower mortgage rates and refinancing can still find favorable mortgage terms.

But it would likely be best to take advantage of the still historic home purchase and financing opportunities that are available today.

Contact your trusted, licensed real estate or mortgage professional today to learn how the growing economy can benefit your family as well.

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