The Federal Open Market Committee did a whole lot of nothing with the funds rate, but a whole lot of something with the Federal Reserve’s purchase  allowances, at its meeting last week. It left the Federal Reserve’s federal funds rate target range unchanged at zero to 0.25 percent. On the other hand, it empowered the Fed to buy another $750 billion worth of GSE mortgage-backed securities, bringing the total to as much as $1.25 trillion; the Fed will double its purchase of agency debt to $200 billion, too. The FOMC also okayed the purchase of up to $300 billion of long-term securities in the next six months. In all, that’s an extra $1.05 trillion from the Fed.

Citi research strategist John Fenn writes in his weekly note that the FOMC meeting “was able to provide the market with a WOW,” but he cautions that its attempt to bolster the mortgage market will be of limited success: “Although this keeps the secondary market for agency securities liquid, past experience shows inconsistent results wit respect to the rates quoted to borrowers.” When the Fed first stepped into this market, ”lending rates dropped but later retraced,” notes Fenn. “Even though this may not happen again, we would question whether or not the agency or conforming mortgage rates are the problem when it comes to stimulating home purchases.”

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