Fed Lowers Mortgage Rates Without “Printing Money”

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The Fed remains in a holding pattern. Just as comparison, take a look at the pace of MBS purchases during QE1 in 2009 versus the current pace of expansion.

mortgage-backed securities federal reserve
$bn, source: St Louis Fed

More importantly, bank reserves are basically holding flat...

bank reserves
Reserve balances with Federal Reserve Banks (source FRB)

... and so is the overall monetary base (effectively no new base money has been created since the start of the QE3 program).

st. louis adjusted monetary base
$bn, source: St Louis Fed

Just the "threat" of open-ended MBS purchases by the Fed has created demand for agency MBS (see discussion), pushing MBS yields to new lows. That in return has sent mortgage rates to record lows as well.

mortgage rates 2007 to 2012
Source: Bankrate

In fact today even as the 30y fixed rate hovers above absolute lows, the 15y fixed and the 30y jumbo both hit records.

mortgage rates 6 dec. 2012
Source: MortgageNewsDaily.com

If lowering mortgage rates was what the Fed intended to accomplish with the latest monetary expansion, the central bank has succeeded. And so far they have done it without a significant change in bank reserves. Whether this will translate into improved economic activity and job growth remains to be seen (see discussion).

Source: Sober Look

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