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Fed Decision, Political Unrest May Impact Rates
Today was supposed to be all about the expected decision by the US Federal Reserve to initiate QE3. However, the recent murder of the US Ambassador to Libya and members of his staff and unrest in several Islamic nations directed at the US has changed the market. In a world as unstable as the recent events prove, investors may be more safety cautious than they would have otherwise been today. This may help mortgage rates.
With the Fed’s affirmative decision on QE3 all but certain to be announced at 12:30 PM ET today, I had expected that today may be an example of the adage “buy the rumor, sell the news” in which the anticipation of some event tends to cause an over-reaction that is corrected once the reality is known. But today’s unrest in a strategically vulnerable part of the world may prevent the adage from fitting today.
Other news today will be interesting as well. As always on Thursday we get the weekly jobless claims report which has been trending higher. We will also get producer price data which is expected to show an increase in prices at the consumer level. Tomorrow’s CPI report will indicate whether or not higher prices are being transferred to consumers.
I must say that if we get QE3 from the Fed and reports that indicate inflation pressure is rising at the same time it would be extraordinary. Monetary stimulus, including QE, tends to be an inflation creator. Consequently, it would be notable that the Fed announces more of it just as inflation appears to be increasing. Clearly the Fed believes that the inflation pressure is not significant.
The bigger issue for the Fed is that QE3 is unlikely to have much impact on its intended target—job creation. Most economists agree that monetary policy alone is a poor tool to create jobs. Moreover, most economists believe that QE becomes less effective over time.
While political turmoil and instability may help mortgage rates in the short term, I feel upward pressure mounting as the US fiscal cliff realities and the US election approach.
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2012-09-13 04:59:15
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