The Fed has been buying $85 billion in mortgage-backed securities and Treasury bonds a month to help support the economy since September last year. The purchases have been credited for the historically low mortgage rates seen this year, which ultimately helped stimulate home sales and boost prices.
Doug Duncan, chief economist for Fannie Mae said that the Fed is expected to announce that it will scale back on its bond-buying program which is expected to cause rates to slowly rise.
The mortgage market has already factored in a modest cutback in the Fed's purchases. Mortgage rates have risen 1.2 percentage points since May when Fed chairman Ben Bernanke mentioned the possibility of reducing the agency's bond-buying program. In June, he noted that the tapering could begin as early as September, if the economic recovery continued on course.
However, even if the Fed started cutting back on its bond purchases this month, many don't expect the cuts to be sizable. "The recovery has been weaker the past couple of months than what the Fed had been talking about," said Duncan. "It would be a surprise if they act aggressively."
Source CNN Money