Boston Federal Reserve Chief Foresees Mortgage Rates Rising (hat tip to Calculated Risk blog)

Kenneth Gosselin and Dan Haar of the Hartford Courant Newspaper interviewed Boston Federal Reserve Bank President Eric Rosengren on Friday (Jan. 9).  He predicts rates will rise 3/4 of 1 percentage point over the next few months as an effect from the Fed ending it's program of buying packaged mortgages (A type of security) from the government.  This was a program designed to support housing prices during the recent economic crisis.  The program is set to end March 30.  By that time the government will have purchased 1.25 trillion of these type securities.

Rosengren foresees rates rising at the end of the program (March 30) or near to the end. He was quoted in the Courant:

"Actually, I've been surprised that we haven't seen more of a backing up already," Rosengren said. "You maybe would have thought you would have seen rates move up more quickly than they have, but nonetheless that is a concern."

The program, along with decreasing demand for home loans, took 1 percentage point off 30 year fixed rate loans---pushing the rate down from 6% to 5%.

Rosengren also said Friday, he does not foresee the Fed will raise rates soon (the Fed sets the rate on loans between banks, which affects many other rates in the market).  He says the threat of inflation right now is very low.  Inflation is currently about 1.5%.  He said (I'm paraphrasing) that they want roughly a 2% inflation rate, and that allows them to bide their time on raising rates and let employment rise some more.

Rosengren said, even if the Fed does nothing, the rates will still rise 1/2 to 3/4 of a point because of the ending of the program.  A sharp rise in the mortgage rates could damage the recovery in the housing market, but they don't expect it to be that dramatic of a rise.

Rosengren has a bit of a reputation of being a "dove" on inflation, meaning he is less eager to raise rates than some of his colleagues.