Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Debt Monetization Moves Spark Refi Madness

Interest-Rates / Quantitative Easing Mar 20, 2009 - 04:28 AM GMT

By: Money_and_Markets

Interest-Rates Best Financial Markets Analysis ArticleMike Larson writes: The Federal Reserve has done it now. In poker terms, it's gone “all in.” Specifically, the Fed said this week that it will ramp up its purchases of Fannie Mae and Freddie Mac Mortgage Backed Securities (MBS) from $500 billion to a whopping $1.25 TRILLION in the coming months. The Fed is also going to double its purchases of Fannie Mae, Freddie Mac, and Federal Home Loan Bank bonds to $200 billion from $100 billion.


And for the icing on the cake …

The Fed will buy as much as $300 billion in longer-term U.S. Treasury securities. It's going to focus on Treasuries with maturities between two and ten years, and make purchases two or three times a week.

Printing money and using it to buy our own debt is Banana Republic-type stuff.
Printing money and using it to buy our own debt is Banana Republic-type stuff.

I'm going to call it like I see it here:

This is Banana Republic-type stuff! And I'm not talking about the clothing store. Printing money out of thin air at the central bank, only to turn around and buy debt securities issued by your Treasury, is the kind of practice you typically see in emerging market regimes.

We're essentially monetizing our country's debt and deliberately devaluing our country's currency. We're also screwing over our foreign creditors — a dangerous path to tread considering we're a net debtor nation that's trying to borrow tens of billions of dollars a month to fund our massive deficits.

But what's done is done …

We've gone off the edges of the map now, and in a way that I think will ultimately end badly. Indeed, the Fed's actions sparked the biggest one-day plunge in the U.S. dollar in several years. Gold also surged, a vote of no confidence in central bankers' willingness to preserve our purchasing power.

The Impact on Treasury And Mortgage Rates …

The currency and metals markets weren't the only ones rocked by the Fed's moves. Long bond futures rocketed more than eight points in price soon after the Fed announcement hit, before pulling back a bit. The yield on the 10-year Treasury Note, which had been flirting with the 3 percent level, plunged roughly 50 basis points in the blink of an eye.

After the Fed's announcement, the yield on the 10-year Treasury Note plunged roughly 50 basis points in the blink of an eye.
After the Fed's announcement, the yield on the 10-year Treasury Note plunged roughly 50 basis points in the blink of an eye.

These are unheard-of moves in the Treasury market! Indeed, a rise or fall of two points in price — or, say, 15 basis points in yield — is considered a big deal. We also saw a big move in the home loan market, with MBS prices rising and mortgage rates falling.

The last weekly survey from the Mortgage Bankers Association pegged the average 30-year mortgage rate at 4.89 percent. That tied the record low set in January. I expect we'll head down to the 4.5 percent level as the impact of the Fed's latest move settles in.

How does 4.89 percent compare to previous lows?

Consider that the lowest annual average mortgage rate seen in the 20th and 21st centuries was 4.7 percent, set right after World War II. In other words, this is just about the cheapest that mortgage money has ever been.

Whether you agree with what the Fed is doing or not, one thing is crystal clear: It's having a major impact on interest rates.

But enough about the big-picture macroeconomic stuff. Let's talk about what the latest round of largesse from the federal government and the Federal Reserve means for rates and your PERSONAL finances.

Specifically …

Is This the Right Time to Refi Your Mortgage Or Buy a New House?

If you have a mortgage, now is the time to get in touch with your lender and see what he or she can do for you. A typical rule of thumb is that if you can save one percentage point on your interest rate, you may want to go ahead and refinance.

But keep in mind that refinancing isn't free …

You'll have to pay upfront fees for everything from a title search to an appraisal to prepaid interest. Those costs can run several thousand dollars, depending on the size of your loan and where you live. So before you decide to refi, make sure you're going to keep that new mortgage with those lower payments long enough to recoup your upfront costs.

There is one alternative: You can have your lender cover most of your closing costs. But if you do so, you'll have to accept a higher mortgage rate in exchange.

Also be prepared for a long line at the lender's office, or a long wait time on the telephone. Because of this latest Fed action and the recent roll out of the Obama mortgage plan, lenders will be swamped with calls.

It's a buyers' market right now. And prices are likely to decline further. So even though interest rates have dropped, you don't need to rush into anything.
It's a buyers' market right now. And prices are likely to decline further. So even though interest rates have dropped, you don't need to rush into anything.

So what if you were considering buying a house? Is now the time to jump in? Will the Fed's move have as big an impact on home buying as it's having on the refinance market? In one word … NO.

Look, refinancing to grab a lower rate and payment is a no brainer when rates plunge. But the decision to buy a house or not depends on a lot more than financing costs …

You have to think about whether your job is secure. And you have to take the likely direction of home prices — lower — into consideration. Does it really make sense to jump in and buy now when the employment outlook is so uncertain? Or when home prices will likely continue to fall for the next year to 18 months?

Personally, I'd encourage you to tread carefully. Take your time. There's no need to rush in and buy now with so many homes to choose from and prices likely to decline further. You, as a buyer, have the upper hand now and will likely continue to have it for some time.

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in