Fed’s Securities Purchases to End in June; Mortgage Rates in Question

The ""Federal Reserve"":http://www.federalreserve.gov will end its second bond-buying spree â€" this time to the tune of $600 billion â€" by the end of the second quarter as planned.
[IMAGE] Fed Chairman Ben Bernanke says although the central bank’s second targeted initiative for pumping money into the economy will cease in June, its end is “unlikely to have a significant effect” on mortgage rates â€" or the broader economic recovery as a whole.

That was Bernanke’s response during the hour-long press conference held Wednesday at the conclusion of the Federal Reserve’s two-day policy meeting â€" the first press briefing on policy decisions held by a U.S. central bank commander in the Fed’s 96-year history.

When the Federal Reserve’s first securities shopping bender -- in which it picked up $1.25 trillion in debt and mortgage-backed bonds from the GSEs -- ended last March, the steep jump in mortgage rates forecast by many analysts never materialized.

Bernanke says the market can expect the same non-event.

Perhaps the most telling piece of information to come out of the Fed meeting...the central bank has downgraded its assessment of the economic recovery from being “on firmer footing” in March to a less upbeat ""proceeding at a moderate pace"" in April.

“We are in a moderate recovery,” Bernanke reaffirmed to reporters Wednesday afternoon, adding that “recoveries following financial crises tend to be very, very slow.”

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The Fed chief also acknowledged that inflation has picked up in recent months, which could influence the direction of short-term policies.

Still, the board of the central bank voted unanimously to keep its benchmark interest rate at near-zero for the time being, although market analysts say now might be the time to start raising the federal funds rate to keep inflation in check.

Again, the ""Federal Reserve’s policy statement"":http://www.federalreserve.gov/newsevents/press/monetary/20110427a.htm said “economic conditions…are likely to warrant exceptionally low levels for the federal funds rate for an extended period.”

Bernanke said the “‘extended period’ suggests there will be a couple of meetings, probably, before action” on that front, but he added that any movement in the rate “will depend entirely on how the economy evolves.”

The Fed continues to label the housing sector as “depressed” and added that one of its primary concerns is that the unemployment rate “remains elevated.”

Bernanke says he expects the national unemployment rate to fall to a range between 8.4 and 8.7 percent by the end of the fourth quarter of this year.

But he says long-term unemployment â€" 45 percent of the unemployed have been without a job for six months or longer â€" is one reason the Fed has been “so aggressive” in its policy decisions, as he put it. According to Bernanke, long-term unemployment is the worst it’s been in the post-World War era.

“With high unemployment…and high rates of foreclosures, I can certainly understand why people are impatient. People are having a tough time,” Bernanke said at the press briefing in reference to the slow pace of recovery.

But again alluding to the fact that recovering from such a deep financial crises can be a slow go, he said he feels the Fed’s actions thus far “seem to have been effective” in terms of easing financial conditions, boosting stock prices, and minimizing market volatility.