Mortgage rates approached 5% on Friday, the highest daily average in more than four years, as inflation fears spooked financial markets and the Fed ended a two-year program that boosted demand for bonds containing home loans.
The pace the Fed sets for its balance-sheet reduction will influence yields on the 10-year Treasury, a benchmark for mortgage-bond investors, as well as the yields on mortgage-backed securities.
Details about the plan to sell assets will begin emerging on April 6, when the policy-setting Federal Open Market Committee releases its minutes, Fed Chairman Jerome Powell said at a March 16 press conference. The reductions could begin as early as the FOMC’s next gathering, being held on May 3 and 4, he said.
“At our meeting that wrapped up today, the committee made good progress on a plan for reducing our securities holdings, and we expect to announce the beginning of balance sheet reduction at a coming meeting,” Powell said at the press conference. “In making decisions about interest rates and the balance sheet, we will be mindful of the broader context in markets and in the economy, and we will use our tools to support financial and macroeconomic stability.
While Powell sought to reassure financial markets with pledges of “stability,” the pace of mortgage rate increases already has surpassed the outlook of all the major housing forecasters, including Fannie Mae, Freddie Mac, the National Association of Realtors, and the Mortgage Bankers Association. Friday’s four-year high in the average rate for a 30-year fixed conforming mortgage was 1.5 percentage points higher than the level seen at the beginning of the year, according to Optimal Blue data.
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