Federal Reserve, FOMC, Market Insight

Federal Reserve Announces New Twist to Stimulate Economy

September 21, 2011 by · Leave a Comment 

Money Power by imagedepotpro | iStockphoto.comThe Federal Open Market Committee (FOMC) gathered for the 6th of eight scheduled meeting for 2011.

Since the last FOMC meeting in August, the economy failed to add any new jobs and the unemployment rates has remained above 9 percent. Growing fears of another recession have been fueled by the poor performance throughout every sector of the economy.

Economists and financial analysts worldwide have been on the edge of their seat waiting to hear how the FOMC intends to prevent another recession while keeping a lid on inflation.

Why should Northwest Indiana and Chicago Illinois home buyers and homeowners 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 has been increasing
  • Inflation has moderated from earlier peaks
  • Longer-term inflation expectations have remained stable

Negative economic factors:

  • Economic growth remains slow
  • Overall labor market conditions continue to weaken
  • Unemployment rate remains elevated
  • Household spending has flattened
  • Investment in nonresidential structures is still weak
  • Housing sector remains depressed

Based on the Federal Reserves interpretation of the economy, the committee voted 7-3 in favor of:

  1. extend the average maturity of its holdings of securities
  2. reinvest principal payments from its holding of agency debt and agency mortgage-backed securities in agency mortgage-backed securities
  3. maintain the target range for the federal funds rate at 0 – 0.250%

The Federal Reserve also elaborated on how they will extend the average maturity of its holdings of securities.

The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less.

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

The Federal Reserve is running out of options and tools to foster maximum employment. The economy appears to be heading for another recession despite the best efforts of the US Treasury and Congress.

This new initiative (aka. Operation Twist) by the Federal Reserve appears to be a re-balancing of short-term debt and long-term debt on the Fed’s portfolio. The Fed is attempting to refinance their debt overall a longer time frame as to minimize the cash flow crunch in the same manner as consumers who refinance short-term debt into longer-termed mortgages.

At the end of the day, will the Fed have enough money to accomplish their objectives of paying bills while paying down the existing debt? Only time will tell. In the mean time, the Federal Reserve will take advantage of the low interest rate environment as well.

Likewise, home buyers and homeowners in Northwest Indiana and Chicago Illinois should capitalize on low home loan rates now before they end. Call or text me at 512-522-7284 to discuss your home loan options!

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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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