I don't know if you saw the stock market rally again today. The reason for this one was the Fed's announcement of the latest and greatest from Bernanke and friends. The newest plan is to buy a bunch of long term treasuries (300 billion worth) and to purchase 3/4 trillion worth of mortgage backed securities (MBS's) from Fannie and Freddie. Why? They are attempting to lower the rates on mortgages and credit cards. The theory being, if they can get the rates down people will begin to spend again. So they are printing another trillion dollars to throw at the problem.
This latest hail Mary by the Fed is required because they are out of ammunition for their interest rate canon. The Fed rate is already basically at zero percent. So they can't stimulate the economy be lowering rates. Printing money is the next best thing. I've read that they are targeting mortgage rates of 4 to 4.5%. That's a good 1.5% to 2.5% lower than the average rates from last year. This would have significant impact on the housing market, but even more so in the Refi market. Who's not going to refi if rates go down to 4%?
A probably side effect though is that we are likely to see higher inflation from these tactics. I think the only thing saving us right now is the price of oil. If that shoots back up then inflation will probably take off. If I were a member of OPEC, I would be doing everything I could to keep the price of oil at affordable levels right now. If oil prices were to shoot back up it could very well be the straw that broke the back of the US and world economies. Let's all pray for cheap oil!
4 comments:
What kind of time frame do you see the current rate of 4.875% going down to 4.5% or 4% I am looking to refi as soon as that happens and how long do you think it will hold?
Bigdog, if I knew that I would be a gazillionaire!
good timing...just about ready
Personally I don't see them going to 4% unless they can push the long term treasuries rate down to 1.5% or so. If they get it that low they will probably destroy the dollar and cause excessive inflation. I suppose it's possible for it to go as low as 4% but I would not bank on it. 4.5% is possible. The dollar is already tanking and causing the price of oil to go up again. This hasn't really been tried before so there is no telling what the outcome will be. It could work great but it could just as easily go spectacularly wrong. We will have to wait and see.
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