Interest Rates Move Back Down

Mortgage Interest rates declined this week eliminating some of the increases over the last few weeks. The following are excerpts from the newsletter on interest rates published by HSH Associates :

"Low interest rates have no doubt helped the economy find some footing, but there is a question of how much additional benefit if any can be had by the Fed engineering even lower record lows for rates. Low rates on their own are useful, but not a cure-all, and valuable only to those looking to borrow money. A business won't borrow to expand its operations and hire more people in a highly uncertain climate such as this; however, they will try to refinance existing debt and pocket the improvement in cash flow. We already have a lot of this sort of thing in place, and more isn't necessarily better.

We also have already had a lot of mortgage refinancing, with at least some unsated demand yet to go, but as with the above, there are limits. There are also plenty of consumer rates seemingly immune to the Fed's machinations, including credit cards and more, so the full benefit of lower interest rates becomes muted for many.

So, will the Fed hold their fire? Odds are probably 50-50 at the moment; a stronger employment report on Friday might have made that perhaps 60-40 in favor of holding steady. Equity markets have had a very good time of it over the past few months, and major indexes are close to or at four-year highs. A huge change in policy might signal that the Fed is gravely concerned about prospects for the economy in the near future, and that might have unintended consequences, even causing a stock market selloff. Lifting asset prices ("inflation" of a sort) is one of the Fed's goals and they would be loath to see stock prices get battered at this point. An interesting note, though: Fed inaction might disappoint the market, too, but that would tend to see money slosh from stocks into bonds... which would tend to lower rates, so the Fed might get some desired results by doing nothing, too.

One thing to keep in mind, too: Any actions by the Fed take time to work their way through the economy, including low interest rates. Regardless of anything the Fed may or may not do, mortgage rates remain at unbelievable levels, and we will probably not see much change in that next week. "

 The following are interest rate quotes from Al Hermann of American California Financial :