Bernanke lowered the Fed’s target interest rate near zero in December 2008 and has since embarked on three rounds of asset purchases to spur a recovery from the deepest recession since the Great Depression and keep the economy expanding.
The third round of quantitative easing may mark Bernanke’s final stimulus campaign. His term as Fed chairman ends in January, and President Barack Obama said in an interview last month that Bernanke has been at the Fed “longer than he wanted.” Larry Summers, former director of Obama’s National Economic Council, and Fed Vice Chairman Janet Yellen are the top candidates to succeed him.
Speculation Fed purchases may slow has also lifted mortgage rates. The interest rate on a 30-year fixed home loan climbed to 4.31% last week, according to data compiled by Freddie Mac. The rate jumped a record 35% in 10 weeks ended July 11 to a two-year high of 4.51%, the data show.
The increase hasn’t derailed a housing-market rebound that has helped fuel economic growth. Sales of new homes rose in June to the highest level in five years, pointing to gains in residential construction that will support the expansion in the second half of the year.
The S&P/Case-Shiller index of home prices increased 12.2% in the 12 months through May, a report showed yesterday.
AvalonBay Communities Inc., the second-largest U.S. apartment real estate investment trust by market value, exceeded analyst estimates in its second-quarter earnings report and said rental housing is showing “strong” fundamentals.
“The U.S. economy is better positioned for growth today than it has been at any time since the downturn,” Timothy Naughton, chief executive officer of the Arlington, Virginia- based company, said in a July 25 earnings call. “Growing confidence combined with significant improvements in consumer and corporate balance sheets are translating into stronger consumption and investment.”
The FOMC began its third round of so-called quantitative easing in September with $40 billion in monthly mortgage bond purchases, adding $45 billion in monthly Treasury purchases in December.
The central bank will probably buy a total $1.32 trillion in bonds under its current purchase program, according to the median estimate in the Bloomberg survey. It will probably halt the asset purchases in the second quarter of next year, according to half of the economists.