Federal Reserve, FOMC, Market Insight

Fed Wants More Stimulus Despite Positive Economic Signs

January 26, 2011 by · 3 Comments 

Federal Reserve System Purposes and FunctionsThe Federal Open Market Committee (FOMC) gathered for the 1st of eight scheduled meeting for 2011.

Since the last FOMC meeting in December the US economy has been providing positive signals on the scope and pace of a jobless recovery. The stock market has enjoyed a nice rally since the beginning of 2011 as well.

The biggest announcement from the December FOMC meeting was the Federal Reserve’s commitment to Quantitative Easing (QE2). There has been plenty of debate since the December 14th FOMC meeting about the effectiveness QE2.

Why should home buyers and homeowners in Northwest Indiana even care about the FOMC meetings?

First of all, the FOMC meetings provides a bird’s eye view of what the Federal Reserve believes to be important factors impacting the overall economy.

Second and more importantly, the press release from the FOMC meetings provides guidance to the financial markets on how the Federal Reserve will accomplish their dual mandate to foster maximum employment and price stability.

According to FOMC Statement Press Release from today, the committee had this to say about the economy.

Positive economic factors:

  • Household spending picked up late last year
  • Business spending on equipment and software is rising
  • Longer-term inflation expectations have remained stable
  • Underlying inflation have been trending downward

Negative economic factors:

  • Household spending…constrained by high unemployment, modest income growth, lower housing wealth, and tight credit
  • Business spending…investment in nonresidential structures is still weak
  • Employers remain reluctant to add to payrolls
  • Housing sector continues to be depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 11-0 in favor of:

  1. maintain the target range for the federal funds rate at 0 – 0.250% for an extended period
  2. maintain its existing policy of reinvesting principal payments from its securities holdings
  3. intends to purchase $600 billion of longer-term Treasurys by the end of the 2nd quarter 2011

The Federal Reserve reaffirmed it’s commitment to Quantitative Easing 2 and is prepared to see it through to the end. The FOMC also acknowledged that the economic recovery is continuing, but not at a pace sufficient to improve the labor market.

What does all this really mean to home buyers and homeowners in Northwest Indiana?

The Federal Reserve is running out of options and tools to keep interest rates at historic lows. The rising trend in home loan rates since the last FOMC meeting in December 2010 is proof that worldwide bond markets are becoming numb to the FOMC’s influence. Therefore, home buyers and homeowners in Northwest Indiana should take quick action to capitalize on low home loan rates before they end.

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James K Barath, CMPS®

James K Barath is a Certified Mortgage Planning Specialist®, Certified FICO® Professional, Certified Military Housing Specialist® and your FHA Home Loan Expert. He is also a graduate of Purdue University, The CMPS Institute, Dale Carnegie Human Relations Course & Napoleon Hill Foundation's PMA Science of Success Class. It's your home and your future. It's his profession and his passion. He is ready to work for your best interest. Contact James for your FREE Home Loan Approval !  His Motto: I Facilitate the American Dream Through Responsible Mortgage Lending and Financial Literacy!

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Comments

3 Responses to “Fed Wants More Stimulus Despite Positive Economic Signs”
  1. A very salient analysis, James. Once again, your observations ring true. It also sounds like the Fed is running out of “handles” to leverage the economy any further. After a certain point we can no longer spend our way into prosperity any further, particularly with State governments going broke and conservatives seeking budget reductions across the board. Are we facing a period of economic rudderless drifting, where the economy is simply at the mercy of circumstances?
    Some critics have suggested that not enough has been done to protect consumers with meaningful regulations to reign in the excesses in the big investment banks. And that despite the “Socialist” labels some have tried to paint, Obama has really been far too easy on bailout recipients; such as their massive bonuses, and appointments to insiders such as Bernanke and William Daley’s. I wonder if the frustration made evident in the populist Tea Party movement are not directed toward a road not taken as concerning regulations on certain risky business-as-usual in Wall Street practices. Real financial reform has yet to occur, yet politicians have only done a band-aid and moved on to other crises.

  2. A very salient analysis, James. Once again, your observations ring true. It also sounds like the Fed is running out of “handles” to leverage the economy any further. After a certain point we can no longer spend our way into prosperity any further, particularly with State governments going broke and conservatives seeking budget reductions across the board. Are we facing a period of economic rudderless drifting, where the economy is simply at the mercy of circumstances?
    Some critics have suggested that not enough has been done to protect consumers with meaningful regulations to reign in the excesses in the big investment banks. And that despite the “Socialist” labels some have tried to paint, Obama has really been far too easy on bailout recipients; such as their massive bonuses, and appointments to insiders such as Bernanke and William Daley’s. I wonder if the frustration made evident in the populist Tea Party movement are not directed toward a road not taken as concerning regulations on certain risky business-as-usual in Wall Street practices. Real financial reform has yet to occur, yet politicians have only done a band-aid and moved on to other crises.

  3. There is truth in what you say and with a government that is so bloated with bureaucracy change will never come fast enough. With that being said, as a real estate professional be careful for what you ask as many would like to turn back the clocks of time and make every home buyer have 20% down payment. The governing body can and will never be able to satisfy everyone; however, it can and does protect the rights of the masses.

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