Industry NewsMortgage

Fed to end MBS purchases

Gradual increase in mortgage rates expected

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Mortgage rates are expected to rise gradually as the Federal Reserve left a key short-term interest rate untouched Tuesday, but said it would wrap up $1.25 trillion in purchases of mortgage-backed securities this month. In a statement, the Federal Open Market Committee said its target for the federal funds overnight rate will remain in the range of zero to 0.25 percent, as inflation is likely to remain "subdued for some time." Although household spending is expanding at a moderate rate, the committee said it remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit. The Fed's purchases of mortgage-backed securities (MBS) guaranteed by Fannie Mae and Freddie Mac have helped keep interest rates near historic lows in the last year. Although the committee said the Fed will wind up its MBS purchases at the end of the month as planned, it has no immediate plans to sell off the bonds it's purchased, which would...