FOMC Commentary from MBA's Mike Fratantoni

The following is MBA SVP and Chief Economist Mike Fratantoni’s commentary following the Federal Reserve’s FOMC statement released this afternoon on monetary policy and the economy:

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“The FOMC did not change the federal funds target at its May meeting, as incoming data regarding the strength of the economy and stubbornly high inflation have resulted in a shift in the timing of a first rate cut. Several Fed officials in recent weeks have noted that they are in no hurry to change the stance of monetary policy. The statement at this meeting highlighted that there has not been further progress towards the Fed’s 2% inflation goal.

“While the overnight rate target will remain unchanged, the statement did confirm an expected change concerning the Fed’s balance sheet, specifically a tapering of the speed with which Treasury securities will roll of the Fed’s portfolio, down to $25 billion max per month beginning in June from $60 billion previously.  The FOMC did not change the ongoing passive roll-off of its MBS holdings but did note that any prepayments beyond the continuing $35 billion cap would be reinvested in Treasuries.

“With our April forecast, we lowered our figures for originations and marked up our expectations for mortgage rates, and today’s FOMC decision confirms those revised expectations. We expect mortgage rates to drop later this year, but not as far or as fast as we previously had predicted.”