Today the Fed begins their 2-day meeting with the Fed Policy Statement set for release tomorrow at 2 ET. Almost everyone is expecting the Fed to cut its target for overnight interest rates (the Fed Funds Rate) from 1% to 0.5%, however almost no one thinks it will do much good. Why? Households and businesses aren't borrowing - not because of the interest rate environment but because of fear.
Some are saying this meeting could be an important milestone in the Fed's history. Over six years ago, Chairman Ben Bernanke laid out non-traditional methods that he now hopes to use to fight the credit squeeze and liquidity crunch. The question is...can he get the rest of the committee on board with this strategy? It is expected that the buzz of the policy statement tomorrow and in coming months will be "quantitative easing" which basically means the Fed is looking to flood the financial system with so much cash that some of it will have to be lent out. It is likely that the Fed would accomplish this by purchasing long term Treasuries and agency debt. This purchasing of agency debt could spur another rally for mortgage bonds, improving home loan rates. However, keep in mind we have many concerns that could move bonds one direction or another - the auto bailout and the Mark to Market decision being the two biggies.
This morning Mortgage Backed Securities continue to cling to the ceiling of resistance. And rates continue to sit around the 5% mark. Interest rates are incredibly volatile and fluctuations that used to take months are now occurring in just days or sometimes even hours. If you don't have an application in process, you could lose out.
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