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Mixed Emotions about what the Fed Will Do

Today is the first of a two day meeting where Benanke and company will discuss our nation’s economy and decide where short term interest rates should be.  I have mixed emotions regarding the outcome of their deliberations.

How can a mortgage broker not be totally, head-over-heels in favor of a rate cut from the Fed you ask?  Certainly, many of our customers would benefit from a cut with lower rates and minimum payments on their Home Equity Lines of Credit (HELOC).  Credit card interest rates may drop also.  Some car loans.  And anyone who has an adjustable rate mortgage (ARM) may benefit at some point if the index used is the Monthly Treasury Average (MTA).

But as we experienced the last time the cost for fixed rate mortgages actually climbed for awhile after the last cut.  The dollar has certainly dropped in value against other major currencies.  This makes our federal government’s debt less appetizing for foreigners or other countries as an investment.  They decide to stop buying our debt and rates will shoot up.

The lower value of our dollar makes imports more expensive and with oil now exceeding $90 a barrel who needs to provide another reason for it to go higher.  Here’s a commodity that has essentially doubled and it hasn’t mattered yet.  We haven’t cut back on its use and the economy is still chugging along.  How long can that go on?

Should the Fed decide to cut, I hope that it is not 50 basis points.  That last reduction was too much and took the markets by surprise.  Anything to keep our currency dropping in value more than it has.  Higher import prices and the risk of our deficit spending not being funded would create volatility that would not be welcome.

It is much easier to determine the type of loan and pricing and therefor your qualifications when the markets are stable, perhaps drifting.  Stability is welcome.

 

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