TUESDAY, August 10, 2010

Blog is Back - BETTER than ever with the up to the minute mortgage market updates that you want and need to follow!!

Will they or won't they?

The core question mortgage investors are batting back and forth among themselves this morning has to do with what, if any changes Fed Chairman Bernanke and his band of merry central bankers will choose to make to current monetary policy. The Fed will make their decision known through their post-meeting statement expected to be issued at 2:15 p.m. ET. I will provide you with an update as quickly as I can immediately thereafter.


In my opinion policymakers will renew their vow to keep their benchmark short-term interest rates near zero for an "extended period" -- and will indicate their concern the budding economic recovery is at risk -- but they will stop short of announcing any form of new stimulus program. I look for the Fed to highlight the fact they have a large arsenal of tools immediately available should additional monetary stimulus be required. If my assessment is correct, the stock market will be vulnerable to a rather sharp sell-off while mortgage interest rates will likely continue to hover within shouting distance of current levels.


In the off-chance the Fed says the risks of the economy tumbling deeper into a recessionary spiral has increased to the point that immediate stimulus steps must be deployed - stocks will likely bounce back and forth in a wide trading range while mortgage interest rates initially knee-jerk rally to new lows on an intraday basis -- before a surge in profit-taking pressures create a long, slow leak back the other way.


No matter how you choose to "slice-and-dice-it" there is no escaping the reality that the core energy source needed to reignite the economic recovery process is now far less dependent on significantly lower interest rates (most hovering at or near their historical lows) - than it is in a marked improvement in fiscal policy - which is the direct domain of Congress and the Obama administration.


Prior to the conclusion of the Fed meeting Uncle Sam will be in the credit markets conducting an auction of a $34 billion bundle of 3-year notes. The sale is expected to draw decent demand from both domestic and global investors alike. If so, this event will not likely exert significant influence on the direction of mortgage interest rates one way or the other. I'll provide an auction update on my web site as soon as possible once the final gavel falls at 1:00 p.m. ET.