By now you know; the Fed made major moves this afternoon to lower mortgage rates and keep long term treasuries from increasing in yield. Re-capping; the Fed will increase the amount of MBSs it will purchase by $750B, taking the overall total to $1.25T of MBSs purchases this year (the original amount the Fed agreed to was $500B). The Fed will increase by $100B the amount of Fannie and Freddie debt taking the overall to $200B in notes to be purchased. The third leg; the Fed will buy at $300B of long term treasuries in the next six months. Entire Fed statement http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm (copy and paste)
It has taken two hours to settle the markets down after the FOMC statement; and we don't expect complete settling for the next two days. Is it good news? Absolutely! A necessary and well-past due move. Finally something directly to the housing and mortgage industry; but it isn't likely to be an easy re-finance boom as we had in the days before the sub prime mess finally ended. As our friend Lou Barnes reminds, the mortgage origination system has been decimated with very little warehouse money available and most lenders turning away from brokers (Chase, the geniuses of the mortgage business, per Jamie Dimon) was one that just pulled out of warehouse lending. Besides that there isn't enough staff in the industry at the wholesale level to handle the potential onslaught of re-financings. All that said, what I say is "its about time a big move came from Washington".
The dollar is taking a real whacking this afternoon on the FOMC moves. Not sure yet what impact that will have on foreign sovereign debt holders (indirects). Inflation isn't a present worry; the Fed is choosing to put out the fire now and worry about the re-building later.
How low will mortgage rate fall? Is the 4.5% level likely to be hit? Instead of stepping out with an opinion now, we need to wait a day or so and let the shock of what the Fed did today sink in. We were in the minority that the FOMC would make the moves today, and didn't believe we would see both treasury buying and MBS increases; markets were in paralysis for 45 minutes after the 2:15 statement. Those CNBC talking heads were so shocked a couple couldn't speak for a few seconds. Lets hold off on the magnitude of the Fed's actions for a day or so to see how markets settle in to this news.
If we are to see a huge re-financing market mortgage rates will have to remain low for months; the time from app to closings will be widened even more than presently. The Fed is now out of the game for at least four to six months with the moves made today. The Fed has interest rates in its hands; next up Treasury, if it ever gets a workable plan with details on TALF programs. Today the Fed got on board with the BOE and BOJ in quantative easing. Not likely it will follow with more until needed, that will take time.
Tomorrow weekly jobless claims, expected to be down14K; March Philly Fed business index, epected at -40.0 frm -41.3 in Feb.
Crude is at $50.00 level; if the dollar keeps declining crude will break above $50.00; T. Boone is forecasing $75.00 by yr end