The Fed may begin the tapering its COVID relief strategy in November or December 2021. Even mentioning a tapering process has already pushed up mortgage rates.
Fed Being Careful to Communicate Its Tapering Intentions
The Federal Reserve is being VERY careful in telegraphing its intention to begin tapering its COVID relief efforts. At the Fed’s Federal Open Market Committee meeting in September, the Federal Reserve discussed its strategy to begin tapering its purchases of mortgage-backed securities and Treasury holdings as early as November or December of this year.
READ: 2022 Top Agent Success Secrets [Revealed]: New FREE Real Estate Coaching Web Event, Revealing 17 Surprising Secrets Of The Top 100 $ Millionaire Agents. Get Your FREE Spot For The 2022 Real Estate Coaching Webinar Now. After You Have Attended This Event You Will Have A Huge Feeling Of Relief Knowing You Will FINALLY Laugh At Your Money Worries – You Will Have Your Own Personalized 2022 Step-By-Step Business Plan. Learn Now How To Generate 100’s of Motivated Leads for FREE, Without Coming Off As A Pushy Salesperson and Losing Your Soul. You Will Soon Know How To Become One of the 1000s of Agents Making HUGE Money Who Never Thought They Could. YES, I Want To Attend The FREE Webinar! <——Click To Register
P.S. Free Webinar, Limited Space. Less Than 300 Spots Still Available.
Fed’s “Life Support” Strategy
Purchasing mortgage-backed securities at $40B/month and adding $800B/month to its long-term Treasury holdings were part of the Federal Reserve’s strategy to put the economy on “life support” at the onslaught of the COVID-19 pandemic in March 2020.
This strategy of asset purchasing made borrowing cheaper, brought mortgage rates to record lows, helped increased demand for mortgage-backed securities (including home loans) and helped prevent an economic crash due to the pandemic.
Now that the economy is running hotter (hotter than some would like) and now that inflation is running higher (higher than some would like), most members of the Federal Reserve’s monetary policy committee believe it’s time to begin scaling back its assets purchasing.
“Life Support” Strategy Transitioning
Minutes of the Fed’s September meeting indicate that IF the economic recovery stays on the current positive trajectory, Fed committee members may agree that transitioning its “life support” strategy to “…a gradual tapering process that concluded around the middle of next year would likely be appropriate” at its next meeting on November 3. Such a “gradual tapering process” would likely begin “…in either mid-November or mid-December.”
Scenario for Tapering Process
One scenario for the tapering of mortgage-back securities and Treasury holdings would occur proportionately over eight months beginning either mid-November or mid-December.
Purchases of mortgage-backed securities would be trimmed by $5B/month and Treasury holdings would be trimmed by $10B/month.
NO FINAL DECISION HAS BEEN MADE AT THIS POINT BUT let’s say such a tapering process could begin in mid-December 2021 and that these “life support” purchases would end in July of 2022…although…the Fed would still continue to maintain its balance sheet by replacing maturing bonds.
IF such a scenario were up in place, analysts believe that interest rates could go up to 4% at the end of 2022.
Simple, Straight Forward and Clear Process of Tapering Process is KEY
Federal Reserve committee members are in total agreement that whatever scenario the Fed uses to taper its “life support” COVID relief strategy, the scenario must be “simple to communicate, understandable, and giving advance notice to the general public of a plan… (to help) reduce the risk of an adverse market reaction…”
Members of the Fed do NOT want to spark a “taper tantrum” as was done in 2013.
Thanks to Minutes of the Federal Reserve’s Monetary Policy Committee and Inman.
