December 2021 saw mortgage rates continue to be pressured higher due to persistent inflation in the markets. The annual inflation rate increased over 6% in November 2021, which is three times the Federal Reserve’s desired target rate of 2% inflation.
Consumer Spending Stimulus Tapers Off
At the December 14-15 FOMC (Federal Open Market Committee) Meeting, the Federal Reserve announced it will double the tapering of its treasury bond and mortgage-backed securities purchase program from a reduction in purchases of $15 Billion per month up to a reduction of $30 Billion per month. At that rate, the program should end by March of 2022.
This program had been purchasing $120 Billion in treasury bonds and mortgage-backed securities from the markets per month, starting in June of 2020 through October 2021, to help support the economy through the pandemic. One of the primary functions of these purchases is to suppress consumer interest rates, such as mortgage rates, to keep stimulating consumer spending.
The Fed will likely wait a few months to see how removing this program will impact inflation before taking any further action to combat inflation.