In today's FOMC statement, the Fed did not change language saying it would keep rates low for an extended period. It also confirmed that it has reached the end of its $1.25 billion purchase of mortgage backed securities.
Here's the specific language about keeping rates low:
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
Despite fears of hyper-inflation voiced by many in the investment community, the Fed does not seem worried. So far, prices have supported this stance.
The Fed is also making a bet that mortgage rates won't rise significantly once it ends the purchase of mortgage backed securities. According to the FOMV statement:
"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month."
Rhe Fed has been slowing the purchase of MBS for some time. Yet, we haven't see any significant increase in mortgage rates.
I expect once the purchases end, rates may move up very modestly - 25 to 30 basis points. What the Fed does with all of securities on its balance sheet is another story. Once it starts to sell them, that could cause a more significant increase in rates, although no one knows for sure.