BCREA ECONOMICS NOW

US Federal Reserve Open Market Committee Announcement - September 18, 2013

To the surprise, and delight, of financial markets, the US Federal Reserve’s Open Market Committee (FOMC) opted not to taper its purchases of long-term US Government bonds citing continued headwinds from fiscal policy as well as tightening financial conditions from higher long-term interest rates. As we discussed in our most recent edition of the BCREA Mortgage Rate Forecast, the impetus to slow bond purchases was always conditioned on an improving economy. Recent signals from the labour market and consumer prices have not supported that now is the time to reign in monetary stimulus. Chairman Bernanke made clear that the Fed’s decision on when to slow or end quantitative easing will be data dependent, resting in particular on a three-part criteria of improved economic growth, a stronger labour market and inflation moving towards the Fed’s target of 2 per cent.

Canadian bond yields, which had been bid up in anticipation of the taper, slumped on the news, falling from an intra-day high of 2.16 per cent to 2.04 per cent. However, unless the US economy seriously falters in coming months, the taper remains on the horizon and so we do not expect 5-year mortgage rates to be significantly influenced.

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BCREA represents 11 member real estate boards and their approximately 18,000 REALTORS® on all provincial issues, providing an extensive communications network, standard forms, economic research and analysis, government relations, applied practice courses and continuing professional education (cpe).