The Fed’s Meeting – What’s it going to mean?

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The Federal Reserve

Bernanke appointed to second term – what does that mean for the Housing Market?

It’s going to be an interesting day in the markets tomorrow.    It appears that the markets were not expecting the announcement to come while the President was on vacation on Martha’s Vineyard.

So what’s it mean to the housing market?   A couple of thoughts:

• It’s widely viewed that Bernanke has done a very good job of keeping the fire from spreading and wiping out the entire financial world.    Really not very many people who argue with that assessment of things.   If you do, I’d like to hear your ideas.
• There are a lot of people who are concerned about what’s going to happen as the government tries to “unwind” their rescue attempts.   That’s why I wrote about an Exit Strategy last month (and why it’s still important).
• There are a lot of people who poke at Bernanke and say, “He should have seen this mess coming.”   Yeah, you don’t get to be a governor on the Fed without knowing what you are doing, but frankly, other than Meredith Whitney, Nouriel Roubini and Paul Krugman, do you know anyone else who really didn’t miss it?   Not that it excuses things but…..
• The markets like stability and they know what they’ve got with Bernanke.

With that said, here’s what I think is going to happen in the short term:

• The stock market is going to like the certainty and stability that they get with Bernanke and will continue to inch upward.
• This will pull money from the bond markets and cause mortgage rates to reverse trend.
• Because this was relatively close to a “known thing,” I don’t expect there to be a huge market movement because of it.

Now let’s see what the market does tomorrow and see whether I’m anywhere close to right or totally clueless.

Call me at (616) 292-7559 if I can help and have a good day!

Tom Vanderwell

Obama to Reappoint Bernanke as Fed Chief – Politics and Government * US * News * Story – CNBC.com

President Barack Obama will nominate Ben Bernanke to a second term as chairman of the Federal Reserve on Tuesday as the economy shows signs of recovery, a senior administration official said on Monday.

Bernanke

Why we don’t have to worry about the Fed raising rates soon…..

Below are “snippets” of an article written by Mark Thoma about a speech that one of the Federal Reserve’s Board of Directors made.   A couple of things that are “worth noting:”

• There is virtually no upward wage pressure right now and that type of “non-inflation” is going to keep the Fed’s rates low.
• The situation is not going to change dramatically.    This article estimates that it will be well into 2010 before we see the real opportunity for the Fed to start raising rates.

Like I’ve said before, in my opinion, we have 12 to 18 months before rates start heading substantially upward and in my opinion, any debt, consumer or mortgage or business, that isn’t going to be paid off within 2 to 3 years should be moved over to as long of fixed rates as are currently available.

When it does rebound, it will rebound quite dramatically, but that’s not yet…..

Tom Vanderwell

Economist’s View: Fed Watch: More Confirmation of Steady Monetary Policy

The weakness of labor markets has virtually eliminated upward wage pressure, and wages and compensation are steady or falling in most Districts; however, Boston cited some manufacturing and business services firms raising pay selectively, and Minneapolis said wage increases were moderate. Boston, Cleveland, Richmond, Chicago, Dallas, and San Francisco cited a range of methods firms are using to limit compensation, including cutting or freezing wages or benefit contributions, deferral of future salary increases, trimming bonuses and travel allowances, reducing hours, temporary shutdowns, periodic furloughs, and unpaid vacations.

Until economic growth is sufficient to propel wages upward, any residual price pressures are likely to be snuffed out by deteriorating real wage growth. Will the job market improve anytime soon? We get a fresh look at initial unemployment claims tomorrow morning, but the July consumer confidence report from the Conference Board indicates that households see a deteriorating jobs picture:

The share of consumers who said jobs are plentiful dropped to 3.6 percent, the lowest level since February 1983. The proportion of people who said jobs are hard to get climbed to 48.1 percent from 44.8 percent.

Lacking a story that leads to strong wage growth in the near – or even medium – term, the Fed is almost certainly on hold at least through this year and likely well into 2010, allowing the size of the balance sheet to adjust according to the needs of the financial markets while keeping interest rates at rock bottom levels.

The Fed

Why does a Federal Reserve Exit Strategy matter to the Housing Market?

You might think that it’s quite an esoteric and ethereal (how are those for big words) discussion, but there is some pretty substantial reasons why it matters to the housing market.

Check out what I wrote over at my other project, “Straight Talk – The Bigger Picture,” for some thoughts on how the Fed matters to the housing market.

Then call me at (616) 209-8811 and let’s talk about it.

Tom Vanderwell

The Fed, Exit Strategy, Tom Vanderwell, Housing

The Fed Translated….

Yep, it’s that time again.    The Fed met yesterday and today and came out with their announcement this afternoon at 2:15 pm.   I promise that this one won’t be as long as the last Fed Translated was.

As usual, my comments are in bold and italics…..

April 29, 2009

For Immediate Release:

Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower.  The downhill slope is less steep than it was.  Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing. Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time.  We aren’t going to see a substantial turn around in the economy soon.  A weak, ambivalent turn around, probably, but not a strong return to growth.  Nonetheless, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability. What else could they say but to say that they anticipate that what they are doing will eventually work?   Would the markets be happy if they said, “We don’t have a clue whether what we’re doing is going to work?”   Nope.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. They don’t say for how long, but I’m going to say that I think we’ve got 12 to 18 months until we start seeing a rapid spike in inflation and a rapid jump in interest rates.  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.  Let’s look at that for a minute.   They think that inflation would be lower than is healthy for a while and so…. So they are going to do what they can to spur things on and encourage inflation – which brings up the possibility that they’ll stir up inflation that they can’t “control.”   Kind of scary…..

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is facilitating the extension of credit to households and businesses and supporting the functioning of financial markets through a range of liquidity programs. The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of financial and economic developments.  They are going to continue to do what they’ve been doing because: 1) They don’t want to take the step that they are trying to avoid which is to overhaul the banking system and 2) If they aren’t willing to take the big steps with Bank of America, Citibank and others, they have nothing else they can do.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Tom here….. So what do I expect the Fed’s statement will do to the markets?   Actually, probably very little.   We might see a little more volatility in the next few days but I expect that we’ll see more volatility and turmoil out of the results of the banking stress test than we will out of this statement.

The Fed Translated

Mortgage Market Update

Rates remain flat this morning, mainly because the markets are “on hold” waiting for the Fed tomorrow and waiting for Bush to get back from Iraq and Afghanistan and figure out what is going to happen with the Big Three.

More will come as the markets sort things out.   Stay tuned!

Tom Vanderwell

ADP Jobs Report

Shows 250,000 private sector jobs were lost in November.   That’s not a good number and while historically the ADP report hasn’t been a good indicator for the Jobs report that’s due out on Friday, it does show that we will probably have a quite ugly number on Friday as well.

Remember, in many cases (and I believe this is one of them) it’s not so much exactly what the number of jobs lost is.  The important thing for market movements is whether the number of jobs lost is more or less than expected.

Stay tuned, but I expect this will put downward pressure on the stock market and upward pressure on mortgage rates (more on why coming later).

Tom Vanderwell

Mortgage Rate Update for 11-28-2008

Black Friday Mortgage Rates have been updated.

They have dropped a bit since Wednesday.   Why?  A couple of things:

1. The stock market is opening softer today.

2. The “ripple” effects of the government’s move to buy mortgages from Fannie and Freddie.

Recommendations:

Lock all loans.   Volatility is continuing.

Recommendations:

If you think you might benefit from refinancing, take the following steps:

1. Do some homework on the value of your house.   Check out www.zillow.com or call your local Realtor.  If you read what I wrote earlier today about Home Values, you’ll see that one of the biggest hurdles in refinancing is what your house is worth.

2. Then call me and we can talk about what options might be available.

Typically the markets are very volatile on a day like today but I think that we’ll see rates stay in this range for at least a day or two to give you time to do some homework on what your house is worth.

Then let’s talk.  Call me at (616) 292-7559.

Tom Vanderwell

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