The end of the Fed’s buying of Mortgage Backed Securities

Late last night the Federal Reserve announced that it was going to be ending one of its primary recessionary supports of the U.S. economy: the purchasing of Mortgage Backed Securities (MBS).  More importantly, the Fed said that it was planning to end the program because the economy was growing, credit markets were normalizing and that inflation remained in check.  The Federal Reserve has its finger on the pulse of the economy, so its confidence about the U.S. economy is noteworthy.

In short, the Fed’s purchases of MBS propped up the price of these securities and kept interest rates low so that the mortgage market could recover.  The Fed has been broadcasting its intent to end MBS purchases for many months, but that has not resulted in a decline in the price/an increase in interest rates on these securities.  Consequently, the Fed believes the time is now to end this artificial support of the U.S. economy.

Analysis: I consider this to be a bullish sign for the U.S. economy.  It will be interesting to get the retail sales figures, consumer confidence figures and unemployment figures in the next several weeks to get a true sounding of the health of the U.S. economy.  As I ply my intuition to the U.S. economy, it feels to me that confidence is improving as our fellow citizens breathe a collective sigh of relief.  This would be the time to put some effort into identifying companies that appeal to you for eventual purchase.

Importance grade: 8; the Federal Reserve’s confidence in the U.S. economy is important because they are charged with tremendous responsibility in monitoring and supporting it.  However, the Fed also abrogated responsibility for raising interest rates during the years that the Real Estate market balooned.  These are the same people in charge of the same institution using the same ideas to manage the economy.  Not necessarily a good thing.

Jason