Daily Commentary by Larry Baer: Trading
action in the mortgage market is light and sporadic this morning. Investors are reluctant to take positions
before the Federal Open Market Committee releases its post-meeting statement
tomorrow at 12:15 p.m. ET.
Most analysts seem to agree there are three
general courses of action the Fed may choose to pursue in their efforts to
jump-start the sputtering recovery;
(1) They can initiate a full-blown
quantitative easing program (QE3),
(2) They can extend beyond June 30th
the scheduled expiration of "Operation Twist" (a program where the
Fed sells short-term notes in its portfolio and uses the proceeds to buy
longer-term notes, or
(3) They can keep their powder dry and wait
to see if coming data shows the economy is just traveling through a temporary
"soft-patch."
The relatively solid current level of
"core" inflation together with upward trending future
"core" inflation expectations make it likely the Fed will choose to
hold off before considering launching a new major quantitative easing program. On the other hand, the current pace of
economic activity is barely registering a heartbeat -- which means the Fed will
likely feel compelled to "do something" - which makes the extension
of "Operation Twist" their most likely course of action.
If this assessment proves accurate, stock
investors will probably feel the Fed has decided to
fiddle-while-Rome-is-burning - prompting a round of stock selling that should
prove supportive of the prospects for steady to fractionally lower mortgage
interest rates. In the unlikely event
central bankers announce the launch of another round of mortgage-backed
security purchases as part of a new Quantitative Easing stimulus
program (QE3) -- mortgage interest rates may creep fractionally higher
from current levels as stock prices climb yet higher.
I'll provide you with an update regarding the
Federal Open Market Committee's decision as soon as possible once the official
statement is released tomorrow afternoon.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
