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Mortgage Rates: Hurry Up and Wait
After a busy week last week US economic data, US political intrigue and European monetary decisions, this week will be short on new data and info—for a while. On Wednesday all attention will be focused on the German Federal Constitutional Court. Thursday the US Federal Reserve is likely to do what the markets have been expected for months—initiate quantitative easing round 3.
The German Federal Constitutional Court is deciding whether it is permissible for Germany to participate in European Central Bank bond-buying programs like the one announced last week by ECB President Mario Draghi. Such a program essentially obligates members of the ECB to provide funds for the purchase of other nation’s debt. German law prohibits doing this directly—the question is whether the law enables it to be done indirectly through the ECB.
Should the German court hold that the ECB’s program does not violate the law it will be viewed very positively by the markets. However, if the program is held to be unconstitutional it could lead to huge volatility in Europe as all economic negotiations this summer have been based on the ECB’s ability to buy bonds from troubled nations including Spain and Italy.
The US Federal Reserve is almost assuredly going to announce further quantitative easing on Thursday. This time there will be no confusion whatsoever about the decision made or the reasoning behind it since the Fed’s Chairman will also hold a news conference after the announcement of policy changes. It is almost universally believed that the Fed will announce more QE.
The only possible reason I can think of that the Fed would not follow-through with additional QE is fear that the European situation could worsen if the German court rules against their participation in the ECB program. The Fed could want to retain a “bullet” in case an emergency situation develops down the road. Clearly, after QE 3, there is very little the Federal Reserve has left in its monetary policy arsenal.
I expect no real change to mortgage rates until Wednesday at the earliest. Even with the decisions coming Wednesday and Thursday, I would not be surprised if mortgage rates stay close to current levels for the foreseeable future.
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2012-09-10 09:22:53
Source: http://www.totalmortgage.com/blog/current-mortgage-rates/mortgage-rates-hurry-up-and-wait/17996
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