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Tag: The Federal Reserve (page 1 of 1)

August 13, 2009

The Fed Translated – and why it isn’t good for interest rates…..

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Mortgage Officer

Author website

My apologies for taking almost 24 hours after the Fed to get this up.   As I’ve done in the past, I want to go through what the Fed said yesterday and give some insights into what I think it means for the housing and mortgage markets.   You can find the entire FOMC statement at Federal Reserve.gov.    As usual, my comments will be inserted inside the statement and will be in bold and italics.   Here goes:

For immediate release

Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. I think it’s important to notice that they didn’t say things are improving, just leveling out.   The Fed never uses any words without a reason. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.  I think that what they mean by household spending is stabilizing is that people have slashed and burned their budgets down to the minimum and aren’t cutting back further.   However, if you look at the Retail Sales Report this morning, it raises a question of whether household spending is stabilizing. Businesses are still cutting back on fixed investment and staffing that’s a nice way of saying jobs are still being lost but are making progress in bringing inventory stocks into better alignment with sales. inventory in better alignment with sales – what that really means is that the jobs that “make things” are still being eliminated. Although economic activity is likely to remain weak for a time a time – that’s a nice way of saying we’re in for a long slow climb back, the Committee continues to anticipate “continues to anticipate” is that sort of like, “Please, please please, I really really want it?” that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.  They have had this sentence in there for a Read more

March 18, 2009

The Fed Translated…..

by

Mortgage Officer

Author website

Well, it’s time to do a little Fed translating again.   This one was a big one, so settle in and let’s translate it.    As usual, my comments are in bold and italics.

Release Date: March 18, 2009

For immediate release

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract.  The economy continues to contract – no surprise there.  But ask yourself, if the economy continues to contract, then why is the stock market rallying?

Job losses, 651,000 jobs lost in February,  declining equity and housing wealth over 20% of the homeowners with mortgages are underwater, and tight credit conditions not only in mortgages, but home equity loans, credit cards, car loans etc., have weighed on consumer sentiment and spending.  Weaker sales prospects and difficulties in obtaining credit businesses are having a harder time getting credit too. have led businesses to cut back on inventories and fixed investment.  U.S. exports have slumped as a number of major trading partners have also fallen into recession. This isn’t just a US recession, it’s pretty much all across the country.  Although the near-term economic outlook is weak gee, that’s an optimistic outlook of things, don’t you think?, the Committee anticipates anticipates?  Is that sort of like I anticipate that I’ll become a millionaire by the time I’m 45? that policy actions to stabilize financial markets and institutions translated – more bailouts, together with fiscal and monetary stimulus translated – the Fed’s printing press will be working overtime!, will contribute to a gradual resumption meaning we really don’t know when things are going to turn around of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued but they don’t say for how long inflation will stay subdued.  My estimate is that we’re looking at 12 to 18 months before the economy recovers enough for inflation to become an issue.   Moreover, the Committee sees some risk that inflation could persist for a time below rates that Read more

January 30, 2009

The Fed Translated…..

by

Mortgage Officer

Author website

Tom here….  Sorry for the delay, but better late than never….. (my comments are in bold)

The Federal Open Market Committee decided today to keep its target range for the federal funds rate at 0 to 1/4 percent. Nothing new there and no surprises.  Can’t go lower than zero and certainly can’t raise them right now. The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. Here again, no big surprises.  I think the surprise is going to be the amount that rates go up once the economy does recover and inflation becomes an issue.   I’ve been talking to a large number of people who want to use a home equity line (at prime or prime minus .5%) to pay off their mortgage.   They would lower their rate down to around 3%, but my recommendation would be to do that only if they can plan on paying the balance off within 1 to 3 years.   My feeling is that any longer term than that will make it too expensive because of the way rates are going to jump up.   For more thoughts on that, see what I wrote a couple of weeks ago about the “W” recovery.

Information received since the Committee met in December suggests that the economy has weakened further. No surprise there. Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cut back spending. Furthermore, global demand appears to be slowing significantly. Conditions in some financial markets have improved, Really?  Which ones? in part reflecting government efforts to provide liquidity and strengthen financial institutions; If you look at Bank of America and Citi, you can’t tell that the financial institutions are stronger, nevertheless, credit conditions for households and firms remain extremely tight. The Committee anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant. Translated – we hope things get better later this year, but we really don’t know, so don’t blame us if it takes longer.

In light Read more

July 2, 2008

FedSpeak July 1, 2008

by

Mortgage Officer

Author website

The following are excerpts of a speech made by David Lockhart, President of the Federal Reserve of Atlanta. My interpretations are in italics and bold.

Speech – July 1, 2008: “What’s ahead
I know you are most interested in the path from here—the path to recovery in the financial markets and, by my inclusion, the broader economy. My base case forecast for the economy involves a stronger-than-expected first half of 2008 with growth of 1 to 2 percent but not much pickup in the second half. That means that things are going to slow down from here to at least Christmas.

The drag of high energy costs, continuing financial market stress, and a still-declining housing sector may continue for a while with gradual improvement of growth in 2009. That means that we hope that by the end of 2009, we’ll see the economy start to show a little improvement. Not much, but a little.

There is much uncertainty surrounding this outlook. We really don’t know and we’re guessing almost as much as you are.

More adverse alternative scenarios are entirely possible. We’re probably being overly optimistic.

Self-reinforcing progressive deterioration Lower house prices will reduce the number of people who can refi out of bad loans which will bring increased defaults which will bring increased numbers of REO which will bring lower house prices (now repeat this again) could continue in the housing market, in turn affecting the financial markets the banks will take it in the shorts if that happens.. And neither the financial markets nor the overall domestic economy is protected from surprise events around the world.

Like many, I believe stabilization of the housing sector is required for recovery to proceed Really? Who would have thought? (Okay, sorry for the sarcasm). There are early and tentative signs that a bottom may be forming in some housing markets. Having said that, a sober approach to calling the future must allow for an additional period of house price decline, a slow housing sector recovery, and, as a result, a quite choppy progression to better markets and economy.” It’s going to be a Read more

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