Fed Minutes : Operation Twist Was A Compromise

The Federal Reserve may be eyeing a new round of stimulus. 

A Fed Divided

Wednesday, the Federal Reserve released the minutes from its 2-day meeting in September.

The Fed Minutes is much less well-known than the FOMC’s over-covered, post-meeting press release, but it’s every bit as important.

The Fed Minutes details the conversations that take place among voting and non-voting Fed members at FOMC meetings, giving Wall Street and economists an inside-look at the debates and discussion that lead to new monetary policy.

The release shows a divided Fed in disagreement about the current U.S. monetary policy. The group reached compromise for new economic stimulus, however, while maintaining its commitment to accommodative interest rates.

Click here to get a rate quote.

“Operation Twist” Was A Compromise

This meeting’s minutes was loaded with gems, including the revelation that members of the Fed are increasingly divided over what’s the next “best step” for the economy. 

Some of the conversation from the September FOMC meeting included:

• On growth : Economic growth was slow, but “did not suggest a contraction”
• On housing : The market continues to be “depressed by weak demand”
• On rates : The Fed Funds Rate will remain low until mid-2013

Then, with Fed members divided on whether the central bank should add new stimulus, it reached a compromise instead, launching the $ 400 billion “Operation Twist” program. Operation Twist is meant to lower longer-term interest rates, including mortgage rates.

Since Operation Twist began, mortgage rates are higher by nearly a half-percent.

Also noteworthy was the Fed’s concern for an economic slowdown. According to the record, further economic erosion may prompt the Fed to introduce its third round of qualitative easing, or QE3.  Nothing will happen until the Fed’s next meeting, however.

Chairman Ben Bernanke & Co meet next November 1-2, 2011.

Lock Your Mortgage Rate

The Federal Reserve may be planning new stimulus and the eventual program could be large. If it is, expect that mortgage rates will rise. That has been the trend of late.

For now, though, conforming, FHA and USDA mortgage rates remain rock-bottom. 

Click here to get your mortgage rate.