We refer to the point when the Federal Reserve will withdraw from the MBS market.

Job growth is the tipping factor, according to most market watchers. On that front, it appears the Fed will likely remain MBS buyers for a while longer. The Fed has targeted an unemployment rate of 6.5% before it seriously considers tapering QE3. The unemployment rate is a full percentage point above the Fed's target, so we still have a ways to go.

Job growth, therefore, is key. If the economy added 150,000 jobs monthly, the unemployment rate could fall to 6.5% in seven months. But there's an extenuating factor: participation rate. If more people enter the employment market, higher job growth will be needed to absorb more participants.

If we were to make an educated guess when the Fed will begin to taper its MBS purchases, we would guess that early next spring is the most likely scenario. So we don't expect rates to rise much higher, at least through the summer, but neither do we expect them to move lower either.

With that said, the probability of higher rates is higher than the probability of lower rates at this point; thus further buttressing our argument on the dangers of waiting.

Courtesy of Jessica Regan.

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