The Gorman Blog

Mortgage and Lending with Gorman and Gorman Residential Lending

The Federal Reserve Board has spoken by issuing a statement after their most recent meeting. From a market perspective, they said nothing. Rates will stay the same. The economy is improving from the severe downturn, but consumer consumption is restrained. This will make the recovery weak. We knew all of this going into the meeting. So, the question is, what does this mean to the markets? In reality, the markets hate surprises, so when the Fed does not give us any surprises, this is a good thing. This is true even when the news is bad. In this case the news was neutral.

If we look a bit deeper, we see that the Fed is moving into a balancing act stage. They must start to remove the stimulus from the equation before things get out of hand. But the economy and psyche of the markets is not strong enough to withstand even the news of such. Therefore, the Fed announced that they will continue purchases of mortgage-backed securities and Treasuries into the first quarter even though they were scheduled to end by the end of the year. This gives the Fed the flexibility to wind down purchases without making an announcement that the program is over.

The president of the St. Louis Federal Reserve Bank is worried about falling into a "trap" in which deflation remains a danger and home loan interest rates remain low for an extended period of time. To avoid that trap, he said recently in a speech that the Fed needs a new policy rule that makes clear how it's going to respond to the situation.

Comments (0)