Economy Watch: RIP QE3
- Oct 30, 2014
The Federal Open Market Committee has officially let the world know that the central bank’s stimulus of the economy, often known by the shorthand QE3, is over. The world was expecting it. FOMC said in a statement on Wednesday: “The Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.” The Fed cited an improved jobs market as part of its decision to halt QE3.
Not that the Fed’s going to begin selling off the assets it bought. In fact, it’s going to continue its policy of reinvesting principal payments from holdings of agency debt and agency mortgage-backed securities into more agency mortgage-backed securities; and of rolling over maturing Treasury securities at auction. The central bank’s holdings of longer-term securities at sizable levels “should help maintain accommodative financial conditions,” the statement said.
What about interest rates? The Fed didn’t specify a timetable for any upward movement of rates, which is completely within character. “[It] likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month,” the FOMC said, without any hints about how long a “considerable time” might be.
Freddie Mac serious delinquencies edge down
Freddie Mac reported on Wednesday that its single-family serious delinquency rate declined slightly, from 1.98 percent in August in September to 1.96 percent. The rate was 2.58 percent in September 2013, and the current rate is the lowest one since December 2008. Serious delinquencies for the GSE peaked in February 2010 at 4.2 percent.
At that annual rate of drop (0.62 percentage points), the Freddie serious delinquency rate has about two more years to go before it reaches a “normal” level. A normal rate of serious delinquencies—that is, non-recessionary normal–is about 1 percent.
According to Freddie, seriously delinquent mortgages are those “three monthly payments or more past due or in foreclosure,” and the company only tracks those mortgages it owns or guarantees. Most of such mortgages end up in a short sale or in foreclosure. Sister GSE Fannie will report its rate on Friday.
Wall Street ended Wednesday lower after the Fed’s announcement, but not much lower. The Dow Jones Industrial Average was off 31.44 points, or 0.18 percent. The S&P 500 lost 0.14 percent and the Nasdaq dropped 0.33 percent.