Tuesday, August 7, 2012

Latest Fed Speak Shows Desperation

Boston Federal Reserve President Eric Rosengren came out on CNBC yesterday to say that the Fed should start QE 3 by purchasing mortgages in order to lower interest rates for borrowers. Now, keep in mind that one Fed president's opinion is not a game-changer. However, let's pretend that the Fed's next option for QE 3 is to buy up mortgages to suppress interest rates. If this news were to hit, the markets would rally initially in expectations that "this time it's different". The really important factor is whether or not purchasing mortages will help spur the housing market (and hence the rest of the economy). Okay, if you haven't fallen asleep yet (then you're a nerd like me) - why would banks lend money out for 30 years at mortgage rates any cheaper than they are today? What will ensue, is the fact that banks will only lend to very high quality creditworthy borrowers, thereby suppressing the housing market. Even mortgage refi's will be depressed due to skeptical banks that would like to have a better return on investment than 2% for 30 years. P.S. - On a side note, does the Boston Fed Prez look like Craig T. Nelson from the TV series "Coach"?

No comments:

Post a Comment