Not Enough…FED Only Cuts by .25%
Chairman Bernanke and his FED friends concluded their last “scheduled” meeting of the year at around 2:15 today and announced a .25% cut in rates. The FED stated today, “recent developments, including the deterioration in the financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation” and that this change “should promote moderate growth over time”.
While their last comment was some what reassuring that the economy will get back on track soon, Wall Street did not think so hammering the DOW down over 230 points.
Many Wall Street analyst believe that this cut was not enough to keep the economy from plunging into recession. The housing and financial markets continue to show weakness with the possibilities of a quick turnaround being very remote if even possible.
This small cut is being viewed as a token attempt to pull the nose up on a plane that is falling faster and faster by the day. While stocks are being hammered today, interest rates are recovering from last week’s move to higher levels.
The 10 year treasury as well as mortgages are showing healthy gains today and we have almost retraced the upward movement we saw last week with the 10 year treasury now trading under 4% for the first time since early last week. But the FED still has not figured out the real problem in the housing and financial sector and it is something that I have been preaching for months about….the lack of liquidity in the markets. If you have a loan amount that meets FNMA/FHLMC or FHA guidelines, there is plenty of liquidity.
However, loan mounts “north” of $417,000 or HUD limits, there is virtually no market to sell those loans into. The problem with this scenario is there are plenty of markets where the housing prices exceed these limits which has greatly curtailed lending at this price point as well as loans that fall into the ALT A world (stated income loans). Until the liquidity issue is resolved, housing and the financial markets will continue to suffer which will ultimately slow down the remainder of the economy which is what we are seeing now…..
Have a great day!!!
DC AIKEN, VP
Economic releases stated in this report do not necessarily depict all economic releases for the week. Market Watch is for informational purposes and its accuracy is not warranted. The opinions expressed in Market Watch are not necessarily those of Countrywide Home Loans.
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