Ding, Ding, Ding………………round 2 says the Fed. Yes this is round 2 by the Fed to print real cheap money (almost free) $600 Billion worth to buy our debt in the form of U.S. Treasury Bonds. How does that work into the mortgage market and interest rates? How the FED lowers mortgage rates is by printing more money, this typically causes the interest rates to go down. Also when there is a lot of people buy U.S. Treasury Bonds then simple economic supply and demand takes hold which keeps the mortgage rates down. The reason for this is the 30 year fixed mortgage rates are usually hedged by the 10 year treasury notes. This is mainly because, on average, a mortgage will only last 7 years until it changes again, either by refinance or person selling their house and getting another one.

So…….the elections are past us and now we know how some policy and laws will be headed over the next 2 years. The Fed is printing almost free money and keeping the interest rates real low and causing cheap money. Can’t really predict the future but from history….just gotta say, beware of inflation, but for now……..hello cheap money…..grab it while you can and stimulate this economy!!!

Want to get a better explanation about this process, just check out this article on the global post.

When markets are on very shaky ground, everyone hangs on the way sentences and wording come out of Fed Chairman Ben Bernanke’s mouth. So of coarse since he is talking later on this Friday, all eyes are on his mouth, well at least the words coming out of it. Here is what CNBC has to say about what might take place, hope you enjoy

http://www.cnbc.com/id/38872170

Bernanke Speech to Set Market Course Friday and Beyond

Published: Thursday, 26 Aug 2010 | 9:30 PM ET

By: Patti Domm
CNBC Executive Editor

Fed Chairman Ben Bernanke speaks on the economy and policy, at a time when both are shaky in the eyes of the markets.

Bernanke’s Friday morning address in Jackson Hole, Wyo. has become one of the most discussed, debated and dissected of his career, even before he’s given it.

“He’s going to need a miracle to satisfy all these multiple expectations that are all over the place,” said Art Cashin, director of floor operations at UBS. It is hoped that Bernanke will clarify two things – how bad the Fed believes the economy is getting and what it might do about it.

Friday’s markets will also get a look at the revisions made to second quarter GDP at 8:30 a.m. That could put the growth rate for the quarter ended June 30 at just 1.3 percent, compared to the previously reported 2.4 percent. That would also be the starting point for the current quarter, which by all signs is showing a continuing drop off in activity.

“Friday is going to bring a meaningful downward revision to GDP…Does the average person in the market know that? I don’t know,” said Dan Greenhaus, chief economic strategist at Miller Tabak. Consumer sentiment data is released at 9:55 a.m. and could also be a market mover.

Bernanke speaks at 10 a.m. before the Kansas City Fed’s annual symposium, which is attended by central bankers, economists and academics, plus an entourage of journalists. He will make his comments behind closed doors, away from television cameras, but on the other side of the country, Wall Street will be hanging on every word.

“The problem the Fed has is their forecast hasn’t changed very much, but the probability of a downside event has gone up, and they don’t think there’s much probability of an upside surprise. The problem they are having is how do they communicate that to people,” said Barry Knapp, head of equities portfolio strategy at Barclay’s Capital.  “It’s not a normal distribution. The downside risks are growing, but we can’t get more aggressive policy until their forecast moves, and they’re not there yet.”

“I think people expecting him to say something that’s going to be beneficial to the market are fooling themselves,” Knapp said.

Communication is what turned the heat up on Bernanke in the first place. When the Fed released the statement after its Aug. 10 meeting, it surprised and confused many in the markets by both downgrading its view of the economy and then immediately moving to a new easing program. Just three weeks before, Bernanke told a different story in Congressional testimony.

“I can’t remember a time when there was so much anticipation for a speech..How did he get here? I

don’t think it’s his fault. It’s the economy,” said J.P. Morgan economist Michael Feroli. But Feroli said the events leading up the last Fed meeting didn’t help, nor did the Fed’s communication after the meeting.

“The statement itself didn’t execute well in conveying a clear message,” he said.

The so-called quantitative easing announced in August involves the Fed replacing its maturing mortgage securities with Treasury securities, which in essence keeps the Fed balance sheet stable. In theory, it also could prevents a passive tightening.

The Fed also left the door open to further easing, which some in the market believe could ultimately be multiple trillions in Treasury purchases. The expected outcome would be that the Fed’s purchases would help force down rates, helping to spur lending. Traders have been gaming how and when the Fed might act.

Many in the market point to the communications that have come from the newspaper, rather than Fed officials. There was a Wall Street Journal article just before the August meeting that suggested the Fed would adopt a program to replace maturing mortgages on its balance sheet by purchasing more securities. Many in the  markets did not believe it would be an imminent action because of Bernanke’s July comments.

Then this week, ahead of Bernanke’s speech, another highly-detailed Wall Street Journal story described a split of opinion within the Fed, and noted that at least seven of 17 members disagreed or were concerned about quantitative easing.

“He does have a committee to respect, but he can push the agenda forward. If he lays out the framework and the conditions under which they would act, and kind of lays out the forecast, I think it’s possible to infer the likelihood of quantitative easing,” said Feroli.

There has also been criticism of Bernanke for not showing stronger leadership, and Fed watchers expect him to use the speech as a way to restore confidence in the Fed’s processes and in himself.

“Maybe people were used to a leader from (former Fed Chairman Alan) Greenspan, but there’s nothing that necessarily says that’s the proper way for a central bank to be governed,” Feroli said.

The Dow Thursday fell 74 to 9985, and the S&P 500 slid 8 to 1047, below a key support level. Bonds saw buying, and the yield on the 10-year moved down to 2.50 percent. Thursday’s weekly jobless claims improved slightly to 473,000, but the number of emergency claims rose sharply, worrying investors. The Kansas City Fed’s survey, released in the late morning, also painted a gloomy picture. New orders fell sharply, not unlike the Philadelphia Fed survey last week.

After the Fed’s two day meeting it is expected that they will continue with the language for keeping the rates low for “an extended period”. This is the over night rate that the banks get charged for using money and that are at near zero rates. What does this mean for mortgage rates? Well, there are many different factors that make up the movement of the mortgage rates just like the treasury note auction and any other items like employment and general markets. The Fed will give their announcement at 1:15pm CST. Below is an article that talks a little bit more about Fed’s meeting and the market. Hope this helps

Fed Set to Renew Promise of Continued Low Rates

Published: Wednesday, 28 Apr 2010 | 10:02 AM ET

http://www.cnbc.com/id/36824213

The Federal Reserve on Wednesday resumed a two-day meeting where it is expected to repeat a vow to keep interest rates at rock bottom levels for “an extended period” while acknowledging the U.S. economic recovery is getting stronger.

A flare up of financial turmoil in Europe, caused by concerns that Greece and Portugal might default on debt, should reinforce the Fed’s reluctance to close out a two-day meeting with any sign that might suggest U.S. monetary policy could soon be tightened.

The Fed cut benchmark overnight rates to near zero in December 2008 and in March last year promised “exceptionally low” rates for “an extended period,” a vow it has renewed at every meeting since.

While the world’s biggest economy is crawling out of its deepest recession in decades, Fed officials have said the recovery remains wobbly and they have warned that the jobless rate is likely to remain uncomfortably high for a long time.

The Fed is expected to announce its policy decision at around 2:15 p.m.

Recent signs suggesting the recovery was strengthening may provoke lively discussion at the meeting about whether the time to drop the low-rate pledge from the central bank’s post-meeting statement is drawing near.

Data released Tuesday showed that house prices rose on an annual basis for the first time in more than three years in February and that U.S. consumer confidence rose to a 1-1/2 year high in April.

Other reports have shown stronger retail sales and factory activity, and hiring by U.S. employers in March at the fastest rate in three years. However, inflation has been negligible.

“The recovery is likely to be seen as broadening out geographically as well among industry groups, while the inflation data highlight the risk of deflation taking root in the economy,” said Steven Ricchiuto, an economist with Mizuho Securities USA Inc in New York.

Some Fed officials are worried that the hundreds of billions of dollars they pumped into the economy after running out of rate-cutting room could spur a bout of inflation as the recovery gains ground. These policy-makers have pressed for the Fed to begin selling some of those securities.

However, with the Fed’s buying spree recently ended, the central bank is not expected to signal any immediate turn-around. Even when it does begin to ponder monetary tightening, the Fed will likely start by draining liquidity from the banking system and raising the interest it pays on bank reserves.

Kansas City Federal Reserve Bank President Thomas Hoenig is likely to dissent for the third time this year against keeping the “extended period” vow in place. Hoenig has argued the recovery is strong enough that the Fed should preserve flexibility to quickly move away from ultra-easy money.

However, Fed Chairman Ben Bernanke and Vice Chairman Donald Kohn have made clear that with the U.S. unemployment rate holding at 9.7 percent for three months in a row, and with inflation not a problem, there is no need to rush to tighten monetary policy.

Financial companies that trade securities directly with the Fed generally do not see the first Fed rate hike coming until the last three months of the year.

Copyright 2010 Reuters.

In politics, financial markets, and real estate the only true constant is change. Ever since November I have been warning about the FED’s stimulus program ending March 31st of 2010 and that would be a factor in making rates jump up a little bit. Sounds like that might change depending on how the politicians roll the dice on this and how our economy is looking. The article below touches on this just a little bit, but only time will truely tell what will happen in the future. Hope you enjoy this and as always, have a glorious day! 

 http://www.cnbc.com/id/35723330 

Fed Might Have to Continue Supporting Economy: Gross

Published: Friday, 5 Mar 2010 | 9:21 AM ET

By: CNBC.com

The slow-moving US economy could cause the Federal Reserve to renew liquidity programs set to expire this month, bond giant Pimco’s Bill Gross told CNBC. With the Fed’s buying of mortgage-backed securities and other programs unwinding, the “new normal” scenario that Pimco has forecast could force the central bank’s hand, said Gross, the co-CIO and manager of the world’s largest bond fund.

“These things have all been very critical but let’s face it—they’re expiring at the end of March,” he said. “The critical question…is do we really need Uncle Sam and the check writing to continue?”

Gross said he remains skeptical of the economy’s ability to grow without the government programs and said it’s possible for “some of these programs to come back” if the economy begins to wobble.

Similarly, he expects some type of bailout for Greece but the European economy to face tough times as well.

“In the meantime, Greece and Portugal and Spain and some of the lookalikes will continue to flounder in terms of yield spread and certainly in terms of economic growth,” he said.

On other issues, Gross said the February unemployment numbers released Friday by the government—36,000 jobs lost, 9.7 percent jobless rate—did not tell the whole story of “structural unemployment,” or the absence of demand of available workers.

The trend fits in with the “new normal” forecast which he said sees economic struggles continuing over a three- to five-year period and even as long as 10 years depending on circumstances.

© 2010 CNBC.com

The FED will most likely announce today after their two day meeting they will leave the over night rate unchanged currently at 0 to .25%. The overnight rate is the going rate at which the FED charges banks for borrower money. So now looking back at any of the banks quarterly earnings, if they can borrower money at 0 to .25%…..lend it at 4.5 to 5.5%…….that is a pretty big profit. Further story at CNBC.com

All the eyes though on this announcement are more aimed towards the wording, is the FED planning to raise rates sooner or later? There has already been the announcement of the FED to stop Treasury buying (the United States debt) so that might be one impact on interest rates. They announced this would take place at the end of the 1st quarter (March). Depending on the direction they want to give, raising of the over night rate must come sooner or later. There is a lot going against the rates being this low…..dollar devaluation, but there is a lot going against raising them, JOBS, real estate, lending.

Hope this helps

Always interested in your comments, so feel free to contact me.

I wouldn’t consider myself an economist, but I did take economics 101. Remember learning about this thing called supply and demand. Currently, the United States is printing money for free….or should I say 0% to .25%…..that is the overnight rate currently. The government has also increased borrowing which means we sell that debt off and the top 3 holders of our debt are:

1. Federal Reserve and Intragovernmental Holdings 4.785 Trillion (March 2009)

2. Mutual funds 769.1 Billion (U.S. Treasury securities)

3. China (mainland) 776.4 Billion

Now, it has been announced that the FED will start to pull back from buying Treasury securities sometime around March 2010. Economics 101, if demand for these go down then price will go up and that means interest rates. The problem though with predicting anything in the financial market is that it is never just that ONE item that causes movement. There are a lot of other factors that will cause interest rates to change, and this is just one of those causes.

Will interest rates go up tomorrow, next week, next month, next year……..that is very tough for anyone to predict and if someone can……..they would be on an island somewhere they own and not telling other people of their predictions.

What I will leave you with is this; The FED can’t keep giving away money at 0% to .25% and will have to raise the overnight rate and protect the weaking dollar. Historically when rates are low and the dollar is weak, rates raise and in my opinion the reason they have been kept low for this long is to help get America back on its feet.

That is why it is important to take steps now, and find ways to reduce the amount of debt you have.

www.jasonwroble.com “Taking a bite out of your biggest debt, YOUR MORTGAGE!”

I sound like a broken record about this $8,000 tax credit for 1st time home buyers, but November 30th is right around the corner and if you were ever just thinking of buying…….NOW IS THE TIME.

Let me give you two reasons:

1. $8,000 tax credit ……….you could get this money!!!

2. Rates are pushing an all time low record. If you are waiting for them to get lower……DON’T!!!!

Have you ever heard of a person buying a stock buy at the excact lowest price of that stock…….NO! If a person did, then it is like them winning the lottery. The FED can not keep printing our money for FREE (over night rate is 0% to .25%) and from the sounds of it, looking to start pulling back buying treasury notes in the 1st quarter of next year. What this means is when the Treasury stops buy the governments debt……….RATES GO UP!!!

I can assist you nationwide and Puedo Asistirle en espanol!

With my network of trusted individuals within the housing industry, allow me to be a person who is a one stop person for any of your home buying needs. If you are needing a mortgage on your purchase, or the refinancing of your mortgage start by sending me an email or give me a call now.