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NEW: FOMC policy stays the same as expected

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WASHINGTON (FILED at 2:50 p.m. ET 1/31/13)--Federal Reserve monetary policymakers today voted 11 to 1 to keep their policy of purchasing bonds and Treasuries as established in December and to continue tying the federal target fund interest rate to near zero.

The Federal Open Market Committee (FOMC) met Tuesday and today in its first meeting of the year with its new roster of Federal Reserve Bank presidents who vote on the policy decisions.  New voting members are Esther George of the Kansas City Fed; Charles Evans, Chicago; Eric Rosengren, Boston; and James Bullard, St. Louis. George was the lone dissenter.

At its meeting in December, the FOMC had said it would continue buying $85 billion in bonds each month--$40 billion in mortgage-backed securities and $45 billion in long-term Treasury bonds. It also indicated it would keep the quantitative easing policy in place until gains in employment are substantial. It also said it would keep short-term rates at near-zero levels until it saw the unemployment rate fall to 6.5% or lower, if inflation forecasts remain near the fed's 2% target.

In maintaining this policy, the committee noted in a statement released after the meeting that "growth in economic activity paused in recent months, in large part because of weather-related disruptions and other transitory factors. Employment has continued to expand at a moderate pace but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has shown further improvement. Inflation has been running somewhat below the committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable."

It "is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction," said the FOMC. "Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative."

The committee said it expects that "with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline toward levels the committee judges consistent with its dual mandate" of fostering maximum employment and price stability.

"Although strains in global financial markets have eased somewhat, the committee continues to see downside risks to the economic outlook. The committee also anticipates that inflation over the medium term likely will run at or below its 2% objective."

If the outlook for the labor market does not improve "substantially," the committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ other policy tools as appropriate, until improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, it will "take appropriate account of the likely efficacy and costs of such purchases."

The FOMC also said  its "highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens." It decided to keep the target range for the federal funds rate at 0% to 0.25% and anticipates that "this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6.5%, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2% longer-run goal, and longer-term inflation expectations continue to be well anchored."

In determining how long to maintain the policy, the committee said it will also consider additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. "When the committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2%," the FOMC said.

Voting for the FOMC monetary policy action were: Chairman Ben S. Bernanke; Vice Chairman William C. Dudley; Bullard; Elizabeth A. Duke; Evans; Jerome H. Powell; Sarah Bloom Raskin; Rosengren; Jeremy C. Stein; Daniel K. Tarullo; and Janet L. Yellen. In dissenting, George noted concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

Fed policymakers not expected to change policy today

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WASHINGTON (1/30/13)--The first meeting for the year of the Federal Open Market Committee (FOMC)--the Federal Reserve's monetary policymaking group--will end today, with economists expecting no changes to the Fed's policies set in December.

The FOMC began its two-day meeting Tuesday and will issue a monetary policy statement at about 2:15 p.m. ET today. Many expect the meeting to be a "non-event" (International Business Times Jan. 29 and NASDAQ.com Jan. 29).

Instead, the committee will likely renew its commitment to asset buying, according to economists surveyed by Bloomberg. At December's meeting, the FOMC announced open-ended asset purchases of $85 billion a month until the jobless rate falls below 6.5%. The asset buying program includes purchasing $40 billion a month in mortgage backed securities and $45 billion a month of longer-term Treasury securities (News Now Dec. 13).

The minutes for the committee's December meeting indicated that some participants believe the Fed's quantitative easing policy may end sooner than the announced timeline. Fed Chairman Ben Bernanke, however, has said that policy will continue until gains in employment are substantial (Bloomberg.com Jan. 29).

Also, today's meeting will not provide a Summary of Economic Projections, as done in past January meetings. Instead, the projections will be revised for the FOMC's March 29-20 meeting.

Watch News Now and LiveWire for updates this afternoon.

Mortgage interest rates dip slightly: FHFA

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WASHINGTON (1/30/13)--U.S. mortgage interest rates dipped slightly in December to 3.29%, the Federal Housing Finance Agency reported Tuesday.

That National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders, used as an index in some adjustable-rate mortgage contracts, was based on loans closed in December. There was a decrease of 0.07% from November, FHFA said.

That rate has consistently gone down, for the most part, during the past year from a high of 4.25% on Feb. 28, 2012, according to FHFA's complete contract rate series.  

The average interest rate on conventional, 30-year, fixed-rate mortgage loans of $417,000 or less decreased seven basis points to 3.47 in December. Those rates are calculated from the FHFA's Monthly Interest Rate Survey of purchase-money mortgages. The results reflect loans closed during the Dec. 24-31 period. Typically, the interest rate is determined 30 to 45 days before the loan is closed, so the reported rates depict market conditions prevailing in mid- to late-November, FHFA said.

The contract rate on the composite of all mortgage loans--fixed- and adjustable-rate--was 3.28% in December, down eight basis points from 3.36% in November. The effective interest rate, which reflects the amortization of initial fees and charges, was 3.42% in December, down seven basis points from 3.49% in November.

The report contains no data on adjustable-rate mortgages due to insufficient sample size.

To view the report, use the link.