Fears of Rate Hike Abate as Fed Watchers See More Caution

Fears of Rate Hike Abate as Fed Watchers See More Caution
Fed Chairman Ben Bernanke. (AP Photo/Richard Drew)

Mortgage rates are creeping up, bolstered in part by higher yields on Treasuries and fears of a pullback by the Federal Reserve on its massive buying spree of bonds and debt-backed securities.
But on Friday government debt prices edged higher — yields move in opposite direction of prices — as the markets felt reassured that the Fed would keep its benchmark short-term rate near zero, as it has down since late 2008, when its policy makers meet this week.
Treasury yields had jumped to 14-month highs earlier this week on fears about the Fed buying fewer bonds.
But diminished worries over the Fed raising short-term rates — along with weaker-than-expected data on industrial output and consumer sentiment — fueled buying in Treasuries, sending benchmark yields to their lowest in a week.
What made the markets calmer? For one, a Wall Street Journal article that said a shift in the Fed’s bond purchases won’t translate into a jump in short-term rates.
The bond-buying is intended to keep borrowing rates down. And that’s what has happened in the vastly recovering housing market where long-term mortgage rates have held below 4 percent in historic territory for more than a year — until recent days when rates have crept up to the 4 percent level.
For weeks, the markets have been jittery over perceived indications from Fed Chairman Ben Bernanke that the central bank could opt to reduce its current $85 billion monthly bond purchases at one of the “next few meetings” — if the economy improves on a steady growth path.
The economy has been improving steadily, although unemployment remains elevated above pre-financial crisis levels and there are still too many long-term unemployed Americans.
Fed policymakers will meet Tuesday and Wednesday and are expected to maintain the rate on the federal funds rate at “near zero.” They will also likely give some clues as to any future winding down of its “quantitative easing” policy adopted more than four years ago.

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