The Federal Reserve Open Market Committee (FOMC) completes their two day meeting today and they will anser the question as to whether they will cut short term rates again. If they do, it will be an historic move, dropping rates to incredibly low levels. The market is somewhat divided on whether they will cut 50 basis points (0.50%) or 75 basis points (0.75%), but most everyone believes they will ease.
The real question is should they? We are now told we have been in a recession for 12 month and that the typical recession lasts about 16 months. It is hard to beleive that the experts have finally figured out what most of us have know for some time, that the economy is pretty bad. Call it what you want, recession, whatever, but bad is still bad.
Should they ease? With all of the previous credit easing and ready availability of liquidity (cash), things should have gotten better. They haven't, because the banks that took advantage of the easy money have chosen not to lend it for student loans and the like. This is the exact opposite of the intended purpose of the esay money. It was meant to be lent.
It doesn't really matter whether they should cut or not, I'm sure they will. They don't really know what else to do. The benefit of another cut is that our Home Equity Lines of Credit will go down again, saving us money. Maybe that is the best we can hope for, and maybe that is just what the FOMC wants.
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Following this scenario, mortgage rates would also drop due to the anti-inflation stance. The downside to this rosy picture is that a stronger dollar would make foreign investors less likely to buy US Treasuries and Mortgage Bonds, because their home currency would be worth less than it was.
I still think the FOMC stands pat and tries to move the markets with its words, rather than with a rate move. Stay tuned.
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The FOMC is walking a very narrow line, with raging food and energy prices on one side and the need for accomododative borrowing and liquidity on the other. Hopefully the FOMC will get it right.
Mu guess is that they will not change rates, but make a strong statement in the meeting minutes that they are at the ready with a rate hike if inflation can't be controlled.
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I am returning from a family vacation and will be in the office on Monday the 7th. I will continue with regular blog entries then.
Have a great weekend.
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Morgan released a statement announcing they have a 4th quarter loss of $3.6 billion, due mostly to a $9.4 billion write-down form their investments in mortge backed securities. Now that is a lot of money. They addressed their problem by selling the Chinese Government a 9.9% share of the company for $5 billion. The new CEO, John Mack, blamed the loss on a "small team" of employees that have been fired. Always easy to blame someone that is no longer around.
I find the size of the amounts amazing. Also, Morgan's stock price rose $2 on the news of the cash infusion from China. Interesting as well. The main impact of this news on Main Street is the sames as it has been. Certain high risk mortgage loans have ben drastically changed or eliminated.
The good news is also a recurring theme. There are still many, many programs available and rates are great.
Have a wonderful day.
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