Interest Rates back in record low territory

Interest rates moved back down to record low territory this week reacting to the Federal Reserve's planned purchase of mortgage-backed securities in the open market to continue to drive down interest rates.The following are excerpts from the newsletter on interest rates published by HSH Associates :

"A week has passed since the Fed's latest bold move to stimulate the economy and nurture the housing recovery, but anyone expecting a huge downturn in mortgage rates would be disappointed by the initial response. Mortgage rates did trickle lower this week, enough to step into new record low territory, but it was by just a whisker for the most popular kind of loan.

The Fed's influence in the market should produce lower rates, but gently, and over time. We believe that the cumulative benefit of the Fed's action to be valued at perhaps a quarter of a percentage point. Of course, this is a moving target, since at any time it is relative to where rates would be, absent the Fed's manipulation of the market.

Part of the Fed's hope in manipulating mortgage markets is to spur home sales but also to cause inflation... specifically, inflation in home prices, which would represent a recovery of equity for many homeowners, not to mention trim losses for lenders, investors and taxpayers alike. Of course, there are limits to the benefit low interest rates can provide, absent fiscal policy which supports them more fully. Those fiscal policies might foster increased employment growth, which in turn would produce some additional homebuying demand, which would further the Fed's goals.

At the moment, we would appear to be in a bit of a holding pattern. The buildup to a hoped-for move by the Federal Reserve has come and gone, and the new program in is place. There is no additional fiscal stimulus coming to join the Fed's move, and limited though it will likely be, the Fed's move will take time to have more beneficial effect. In the meanwhile, we can do little but sit and hope that the economy continues to hold steady or even grind higher.

Next week brings a few indicators of note, including new home sales, the final look at second quarter GDP, a couple of readings on consumer moods and more. Mortgage rates eased into new record space this week, and that's probably going to be the case next week, too, as the Fed continues to push its way into the market. "

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