First, a little background.
The economy has been non responsive or sluggish for several months now with 9.8% unemployment. The
When consumer spending and confidence are at or near all time lows people are not fueling the economy, they are not spending like we need them to. To get our economy growing again we need consumer spending and lots of it to grow out of our current predicament. How does the FED stimulate consumer spending and turn the economy with what appears to be little help from Joe consumer?
The FED's answer is to pump cash into the system, by selling bonds which in turn inflates the money supply and the markets. The stock market is the biggest benefactor of this stimulus. The logic is when Joe Public sees his 401k or investments go up (inflate) he feels a sense of renewed wealth and will begin to spend money more freely. Hence it’s the 71% of consumer spending I mentioned which drives our economy and has a large impact on the overall economic growth.
One of the side effects though is that the inflation of the stock market may actually prove to be a mirage and with the stock market inflation brings the inflation for good and services. Among these services are the financial services, in this case mortgage rates.
Why you may ask? Let's say I am a larger institutional investor interested in buying US government bonds. The FED has just announced another round of stimulus spending (Read Printing Money). As an investor I will demand a higher return for my investment due to increased inflationary risk the FED just announced.
Hence mortgage rates will continue to climb slowly as we move through this round of stimulus. Those of you sitting on the fence waiting for the rates to come back down may be very disappointed. Today’s rates are beyond what many of us ever thought we would see and having stated the obvious if you are in the market to refinance or purchase, now is the time to act.
