Is The Fed Out of Bullets?

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The Federal Reserve Board met this week and even though the markets were not expecting surprises to emanate from this meeting and none surfaced, an interesting article was released by CNN/Money this past week. The article asks an important question–is the Fed out of bullets? By way of background, we have been recovering from the deepest financial crisis since the Great Depression. The government, led by the Fed, has been firing on all cylinders ever since. In our opinion, they started a bit late and that became part of the problem as we were convinced the markets could survive what was then termed a 'sub-prime crisis.' Well, it became much more than that. Since this late start, the Fed has been doing just about everything besides washing America’s dishes. The next question arises–what if this medicine is not enough? The Fed already moved short-term rates to zero and purchased trillions of dollars of mortgage and Treasury securities while the government took over housing agencies Fannie Mae and Freddie Mac as well as doling out tax stimulus dollars like they were going out of style. What if the economy does move back into recession and more bullets are needed? We say perish the thought. From day one, this has been a crisis of confidence. The public and the markets must be convinced that the economy will recover. We must not think or speak negative thoughts. It may take some time, but employment will grow and as employment grows, Americans will purchase houses and cars. Then our worry will be when will the Fed raise rates and how will we pay for all the bullets we have spent. Meanwhile, today we have an unprecedented opportunity to take advantage of bargains courtesy of the Federal Reserve Board

Mortgages are cheaper today than they’ve been in a half-century. Rates are at their lowest since the mortgage company began keeping records in 1971. The last time they were any cheaper was the 1950s, when most long-term home loans lasted just 20 or 25 years. Rates have fallen over the past two months as investors have become nervous about Europe’s debt crisis and the global economy and have shifted money into safe Treasury bonds. The demand has caused Treasury yields to fall. Mortgage rates track those yields. Lower rates and low home prices have brought affordability to levels not seen for years and increased demand for refinances. Source: Associated Press Companies are changing and expanding relocation policies to accommodate employees who otherwise are refusing transfers because they don’t believe they will be able to sell their homes for enough money. Worldwide ERC, a trade organization for human resource associations that oversee, manage, or support employee transfers, surveyed 129 companies in 2009. The survey found: 28 percent of employers are requiring transferred employees to list their homes within a reasonable range based on an appraisal in order to qualify for assistance; 26 percent have added incentives for employees to find their own buyers for their homes; 26 percent have extended the time they will pay for temporary living assistance; 20 percent have added a requirement that employees use selected real estate professionals to market their homes; 17 percent have added loss-on-sale assistance. Source: The Atlanta Journal-Constitution