The Federal Reserve will stretch out purchases of mortgage-backed securities that have helped keep mortgage rates low, extending the $1.25 trillion program’s sunset from the end of this year to to March, 2010.

Mortgage market observers welcomed the move, saying the Fed would have been hard pressed to use up by the end of the year the program’s remaining capacity for more than $600 billion in MBS purchases, the Associated Press reported.

The Federal Reserve will stretch out purchases of mortgage-backed securities that have helped keep mortgage rates low, extending the $1.25 trillion program’s sunset from the end of this year to to March 2010.

Mortgage market observers welcomed the move, saying the Fed would have been hard-pressed to use up by the end of the year the program’s remaining capacity for more than $600 billion in MBS purchases, the Associated Press reported.

The Fed made a similar decision in August to draw out the planned purchase of $300 billion in Treasury securities through the end of October, rather than ending the program in September as planned (see story).

Since then, there’s been further improvement in financial markets and activity in the housing sector has increased, the Federal Open Market Committee said in announcing a decision to maintain the target for the federal funds overnight rate at zero to 0.25 percent.

Although economic activity is "likely to remain weak for a time," the committee anticipates strengthened economic growth and "a gradual return to higher levels of resource utilization," with inflation "subdued for some time."

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