Federal Reserve stays the course with rates
November 4, 2009 by admin
The FOMC today announced that there would be no changes to the Federal Funds or Federal Discount rates. This news was certainly expected by wall street and economists across the world who have been expecting the Fed to hold rate steady through early 2010 as the economy looks to recover. The majority of economist following today’s news were more interested in reading the Fed’s meeting minutes and full text release, rather than focusing simply on the interest rate decisions. The FOMC’s role in subsidizing the secondary mortgage markets appears very much in tact for the time being and is likely to be one of the key areas that the Fed focuses on in its attempts to exit out of a primary role of supporting the financial system. The Fed did notify the market that they would like purchase a smaller amount of agency debt for the balance of the year. Originally the Fed had promised to purchase up to two hundred and fifty billion dollars worth of mortgage securities, they are now projecting this figure to be less than two hundred billion, a signal that the supply of mortgage loans may have peaked earlier this year, despite historically low interest rates.
The Federal Reserve has a significant hurdle towards changing the present monetary policy. The lack of job creation this year has been very disappointing for the administration and the Federal Reserve. The improvement in the equity markets and uptick in GDP are certainly factors that could help bring the economy out of its tail spin, but this hope could be dashed quickly if the October jobs report due out this week disappoints the market. Most analysts are predicting that the non farm payroll report will be improved from the month of September, but has zero possibility of demonstrating job growth.
In addition to today’s FOMC release, the private sector ADP job report showed a net loss of jobs exceeding 200,000 for the month of October. There is a very good chance that this week’s job report could push the national unemployment rate above ten percent, a figure that underscores the total number of workers displaced due to the fact it only accounts for active job seekers. The struggle to create jobs is an area that has hit Main Street America very hard and will be an issue that draws more attention from the administration moving forward. Today’s economic news did little to inspire the equity markets which posted a modest gain for the day. The Federal Reserve cemented home the idea that the economy has posted an impressive recovery, but future growth will likely be slow and measured. This news echoes many experts who now believe the markets may have peaked for the year , and future earnings will have to rely more heavily on growth than cost reductions. Mortgage rates were relatively unchanged with the news, despite the yield on the ten year bond edging back up above 3.5% for the first time in the last thirty days.
November 2, 2009
November 2, 2009 by admin
The month of November got off to a fantastic start for the equity markets on Monday as investors looked to reclaim positions following the October sell off. The beginning of the month was aided by several key economic reports which helped to provide investors with confidence to rejoin the market, despite what appears to be a growing concern on the sustainability of the DOW. Mortgage rates are starting the month on an upward push. The yield on the ten year bond closed at 3.42% on Monday, moving up slightly to start the week. Most national mortgage lenders are offering thirty year fixed rate loans at 5.125 or higher, interest rate advertised below five percent are likely to require points or could be on a shorter term such as a fifteen year mortgage.
The housing industry helped to lift the stock market on Monday with a report indicating that pending home sales for the month of September edged higher by over six percent. Existing home sale are certainly poised to have another strong showing this month as investors move quick to lock in and close prior to the expiration of the governments home buying tax credit, due to expire at the end of the month. There is growing sentiment that the governments tax credit will likely be extended and expanded in 2010 to include move up buyers, but without a guarantee savvy buyers are locking into properties and ensuring they don’t miss out on up to $8,000 in free money, while also taking advantage of super low mortgage rates.
The stock market will remain in focus this week as equities and bonds will be closely following a slew of economic reports, including the release of the October jobs report at the end of the week. In addition to the jobs report, the FOMC is meeting this week and will review monetary policy changes, but there is a zero percent chance that rates will be adjusted upward this week. More likely the market will again have a chance to dissect the Fed’s statement for further guidance to their stimulus policies. Of particular interest will be the Fed’s position on handling their exit of support to the mortgage backed loan security market. The Fed has remained committed to helping keep interest rates at key levels for the near future, but have admitted they are looking to unwind their support of this market and shift the responsibility to private investors. This transition could be pivotal in keeping the housing markets on course for a recovery next year. The combination of Fannie Mae, Freddie Mac and FHA are collectively financing over ninety percent of all mortgage issued in 2009. The reluctance of investors to begin purchasing mortgage backed assets is an issue that the Fed will certainly further address in this weeks and upcoming FOMC meetings as they attempt to begin the transition. The Fed will benefit from reviewing key reports such as last weeks GDP report and will certainly focus on the lack of job growth as they discuss potential changes to monetary policy, most economists believe that the Fed will not be in position to begin raising interest rates until next summer at the earliest, good news for home owners and credit card holders who can benefit from the lower lending rates for the next six to nine months.