What Yellen Should Say.

MBA Mortgage Applications (week ended 3/13/2014)

– Purchase Index Week/Week -2.0%. Previous weeks were +2.0%, -0.2%, +5.0%, -7.0%, -7.0%, -2.0%, -0.1%, -3.0%, +24.0%, -5.0%, +1.0%, -7.0%, and +1.0%.

– Refinance Index Week/Week -5.0%. Previous weeks were -3.0%, -0.2%, +1.0%, -16.0%, -10.0%, +3.0%, -5.0%, +22.0%. +66.0%, -12.0%, +1.0%, and +0.0%.

– Composite Index Week/Week -3.9%. Previous weeks were -1.3%, -1.3%, +0.1%, -8.0%. -13.2%, -9.0%, +1.3%, -3.2%, +14.2%, +49.1%, -9.1%, +0.9%, and -3.3%.

Decreased demand for mortgages indicates the softnesss of the housing sector which was indicated yesterday in the very low Housing Starts number.

 
FOMC will make their announcement and media have painted this as being about whether or not the word “patience” is included.

This is my view:

IMHO the media discussion about “patience” is inane. The Fed must recognize that it cannot raise rates until the economic situation in the EU has improved. If the Fed raises rates now,money would move from Euros to UD$ hurting Europe and hurting US Exports. The most important piece of economic data at the present time is not the Dow or the price of oil. The single most important piece of data is the US$/Euro exchange rate.
Moreover, fundamentals are pathetic. The discussion about raising rates should stop.

This is what Yellen should say: “The US has seen recovery in jobs as a consequence of our QE and what we need to do now is wait for the EU’s QE policies to kick in and get their GDP growth going again. Until such time as there are signs that the economy of the EU is in recovery we will leave rates where they are. One of the Fed’s mandates is to keep unemployment low and raising rates too soon could undo the gains we have made in the past 2 years. Our policy as to when we will increase rates will be driven by the data not by our words before we see the data.”