Fed Announces Inflation Strategy and Future Interest Rates!

The Fed in the past hour released an announcement following their Open Market Committee meeting.  As expected, they kept the Fed Funds Rate Target at 0.0 - 0.25%.  No surprise here but there was one dissenting vote (Lacker - wanted to buy Treasury bonds rather than MBS) and some interesting comments.  Traders have waited anxiously to see what they would say about inflation.  For two week now the chatter has been all about inflation and what the stimulus activity might do to inflation.  The announcement (reprinted in its entirety below) includes 3 or 4 very important sentences hinting about their future actions.  Here are the 3 sentences and my comments in brackets:

The Committee continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. [DW: this is a very good calming statement and provides a good tenor, particularly for commercial lending.]

...the Committee expects that inflation pressures will remain subdued in coming quarters. [Again, a very calming statement.]

 Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.  [What?  I think this is saying: ‘But we see risk that inflation could come back because we're going to favor rates low enough to foster growth and stability rather than focus on inflation for a while.' -Wow!  There was an immediate sell off of MBS on inflation fears that has already recovered entirely in a period of less than 20 minutes.  We'll be watching this.]

The statement goes on to insure that they will continue to buy MBS as necessary to keep housing interest rates low and keep the housing market recovering.  In fact this is another interesting sentence:

...and it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant.  [I read this to mean they might expand beyond the current $500 Billion projected purchase window.  They were at $30B through last Thursday and will come out tomorrow with another weekly reports on purchases, but if they are willing to go beyond the $500B as necessary, this is very good news.]

And the final good news reminder is that they have not yet begun their TALF purchases targeted at $200B that will have a real improvement on commercial lending, specifically SBA lending.  Other proposals released this week on SBA improvements are welcomed after 2008 saw drops of greater than 50% in SBA lending.  It is time to get that part of the credit world lending again.

As it stands we are in the middle of an extended period with mortgage rates at their lowest in our lifetimes!  Let Signet Mortgage help you, your friends and your clients take advantage of this once in a lifetime opportunity.  -Dave