Ben Bernanke and the Federal Reserve are front and center this week as the Federal Open Market Committee (FOMC) begins its 2-day meeting to evaluate the US economy and set monetary policy. This meeting marks the last for ‘Big Ben’ Bernanke and market participants have been weighing the outlook.
At the December meeting, the FOMC announced it would begin tapering its bond purchase program which has propped up the housing market via artificially low interest rates. Following the December meeting, mortgage rates worsened losing over 70 basis points before stabilizing.
While the FOMC has given no indication the Fed will delay tapering this month, there is an outside chance they may hold off due to the weak January unemployment report. Richmond Fed President, Jeffrey Lacker warns of reading too much into the weak December jobs report. Should they back off the taper, it would reveal a lack of confidence in the economy, and likely result in a pull back in the market and a flight to safety for bonds (which is good for mortgage rates).
The question that hangs in the air is whether or not the FOMC continues the current course of tapering that began in December or increases the taper. The market expectations are for a gradual withdrawal at a monthly rate of another $10 billion. This could be a spark to the rally.
The meeting begins today and concludes Wednesday with the Policy Statement at 2 PM EST. Most agree that the FOMC is unlikely to make any surprise moves at Bernanke’s last meeting as Fed Chair before he retires at the end of the month.