Archive for June 25th, 2008

Comments Off on Making English Out Of Fed-Speak (June 2008 Edition)

Making English Out Of Fed-Speak (June 2008 Edition)


2008
06.25

The Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent this afternoon, as expected.

In its press release, the Federal Reserve noted the co-existence of inflation and recession.

On inflation, the Fed said that energy and food prices are contributing to an “elevated state” of inflation, but that it expects price pressures to ease “later this year and next year”.

On the topic of recession, the Fed seemed a bit more concerned.

Overall, markets reacted favorably to the press release; both stocks and mortgage rates showed signs of improvement in the statement’s wake.

Source
Parsing the Fed Statement
The Wall Street Journal Online
June 25, 2008
http://online.wsj.com/internal/mdc/info-fedparse0806.html

Comments Off on How The Fed’s Words Should Trump The Fed’s Actions Today

How The Fed’s Words Should Trump The Fed’s Actions Today


2008
06.25

The Federal Open Market Committee adjourns from its 2-day meeting at 2:15 P.M. ET today. It’s widely expected that the group will leave the Fed Funds Rate unchanged at 2.000 percent.

However, it’s not what the Fed does today that has markets so interested. It’s what the Fed will say.

One of the Federal Reserve’s roles is to promote stability in the U.S. economy by protecting it from two major threats:

  1. Inflation
  2. Recession

The Federal Reserve’s primary weapon against both of these hazards, though, is the same — the Fed Funds Rate. To combat inflation, the Fed raises the Fed Funds rate. To fight recession, it lowers the Fed Funds Rate.

But in today’s economy, there is evidence of both inflation and recession meaning that the Federal Reserve is likely to leave the Fed Funds Rate unchanged for fear of setting the economy too far towards either threat.

Therefore, markets will be left looking for clues in the carefully-worded press release signed by Federal Reserve Chairman Ben Bernanke and the other voting members of the FOMC.

If the Fed admits added vigilance against inflation, it’s expected that mortgage rates will fall because inflation causes rates to rise. By contrast, if the Fed harps on the downside risks in the economy, it’s expected that mortgage rates will increase.

Either way, today’s press release should be a market-mover.

If you’re currently floating your mortgage rate or are deciding between different lenders, be aware that mortgage rates will enter a period of extreme volatility this afternoon.

It may be prudent to complete your rate shopping before 2:00 P.M. ET.