The Federal Reserve Board has improved its projections for unemployment. But, even with the rosier outlook, Fed policy has mortgage rates set to remain near their record-low levels through at least the end of next year and possibly even another two years.
A statement Wednesday from the Federal Open Market Committee indicates the while economic activity and employment have recently continued to expand at a moderate pace, unemployment is still too high.
“Although the unemployment rate has declined somewhat since the summer, it remains elevated,” the FOMCÂ statement said. “Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed.”
The Fed said that, apart from temporary variations that largely reflect fluctuations in energy prices, inflation has been running somewhat lower than the FOMC’s longer-run objective.
The Fed said it will continue to buy agency mortgage-backed securities at a $40 billion monthly pace and longer-term Treasury securities at an initial monthly clip of $45 billion.
The target range for the federal funds rate is anticipated to be kept at between 0.00 percent and 0.25 percent as long as the unemployment rate is above 6.50 percent.
As of Nov. 30, U.S. unemployment was 7.7 percent, according to the Bureau of Labor Statistics.
According to economic projections from Federal Reserve Board members and Federal Reserve bank presidents, the unemployment rate is expected to range between 6.9 percent and 7.8 percent in 2013.
By 2014, the low end of the range falls to 6.1 percent — enough to prompt a change in Fed policy.
But the high end of the range is 7.4 percent in 2014 and 6.8 percent in 2015. If unemployment remains at the high end of the range, mortgage rates could remain near record-low levels through the end of 2015.
In the longer run, the Fed has the unemployment rate ranging from 5.0 percent to 6.0 percent.
