Not Sucking So Bad

Mortgage and Lending with America's Mortgage LLC

Here are 4 points or comments from the Fed after their meeting on Wednesday-

•·         They are slightly more optimistic about the economy as job losses continue to slow.

•·         Inflation remains subdued.

•·         Their MBS purchase program will END on March 31st.

•·         The Fed Funds Rate will remain low for an extended period of time.

My Comments-

•·         Notice, not a word about jobs being created or saved. That's because it is NOT happening yet.

•·         I believe inflation will be nearly non-existent for quite awhile. Normally, inflation or fears of inflation start in one of two areas: labor or oil. With an unemployment rate at 10% that is sure to rise this year, short work weeks, small if any raises, and millions of Americans having left the workforce due to the lack of jobs, inflation will not start in the labor sector for probably at least 3 to 5 years.

•·         Normally all the printing of money by the Fed and Treasury would cause inflation or at least fears of inflation; but they are not. Why? At a macro-level our economy still sucks; it just does not suck as bad as it did a year ago. On a scale of minus 10 to a positive 10, I would rate our economy at about a minus 4; whereas, a year ago it was at a minus 8 I would say.

•·         Looking at The Consumer Confidence Index supports this as a year ago Consumer Confidence dropped to around 40. This month it's at 55.9. For much of the last 2 decades this number was ABOVE 100! Our economy has a long long way to go to be healthy again and even longer before inflation is truly a concern.

•·         This is why the Fed is leaving the Fed Funds Rate at 0-.25%. If you read "between the lines" the Fed is saying our economy sucks; but it does not suck as bad as it did last year.

Come April I still expect that mortgage rates will rise to around 6% as the Fed quits buying mortgage bonds or MBSs. But, unless there is a panic I don't see mortgage rates rising to 7 or 8% anytime soon. Which is reassuring to my wife as we have a ARM that began adjusting December 2009 and will adjust every year thereafter.  Nor do I see short-term rates rising either that ARM rates like ours are tied to. I wish we could refinance; but can't as we have a Heloc with Compass Bank and they won't approve our Subordination Agreement.  



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Michael Gordon - Colorado Springs Mortgage Lender
Peoples Mortgage Corporation - Colorado Springs, CO

Lonnie...Not sucking so bad is like saying you're only a little dead, it still sucks.   I agree, job gains are what we need, and until that happens, inflation will remain in check. The end to the MBS purchase will be an interesting dynamic, especially for those who beleive any rate over 6.00% in unrealistic.

Jan 27, 2010 06:56 AM #1
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Lonnie Glessner

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