What a difference a week makes! As most investors try to untangle the web of economic activity painting a mixed picture on the economy, the Fed this week announced it would inject more than 40 Billion into an already struggling banking system. The Fed is giving beleaguered banks the opportunity to access funds without having to borrow money directly from the Fed at the usual short-term discount rate, which stands at 4.75 percent. This comes after the markets reacted negatively to what it perceived as a paltry 1/4 point cut in the Federal Funds and Discount rates the beginning of the week. All of this, however was overshadowed at the end of the week when the consumer price index rose a higher than expected .8% in November. This represented the largest jump since September of 2005 and has raised fears that inflation may be on the rise.
What does this all mean for mortgage rates? Well, it means the Fed has a quandary on it's hands. They will be hard pressed to continue lowering rates in the face of inflationary pressure, however, an already struggling housing market is starting to put pressure on the broader economy. Ben Bernake will be earning his stripes over the next 3-6 months.
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