Economic Weakness Lowers Mortgage Rates

Comments from Fed Chief Bernanke and weaker than expected data from the job market painted a grim picture of current economic conditions. Slower economic growth generally leads to lower inflation, which is good news for mortgage markets, and mortgage rates dropped moderately during the week.

 

Wednesday, Bernanke testified before Congress. The focus was on the Bear Stearns rescue plan rather than current economic conditions, but he did outline the Fed’s latest economic outlook. While acknowledging that the economy is in the midst of a downturn, he suggested that the economy will strengthen in the second half of the year, and he expects that growth will be positive in 2009. He believes that Fed rate cuts and government stimulus packages will help lift the economy. He also predicted that inflation will moderate in future months.

 

Friday’s Employment report fell short of even Wall Street’s reduced expectations. Against a consensus forecast for a loss of -50K jobs, the economy lost -80K jobs in March, and the figures from prior months were revised lower by an additional -67K. This marked the worst monthly results since March 2003. Once again, the construction and manufacturing sectors performed poorly. Average Hourly Earnings, a proxy for wages, rose at the expected rate. Overall, even though the job market performed very poorly during the first quarter of 2008, the current Unemployment Rate of 5.1% is still reasonably low by historical standards, and the Fed thinks that a recovery is not too far away.

Post Provided by: Corey Phelps, Front Street Mortgage, corey@frontstreetmtg.com

FED Cuts Rate by .75

Statement: NAR Commends Federal Reserve Board on Timely Interest Rate Cut

WASHINGTON, January 22, 2008 -  The following is a statement by Lawrence Yun, chief economist of the National Association of Realtors®, on today’s action by the Federal Reserve Board: “Today’s 75-basis-point cut in the Fed funds rate to 3.50 percent is a very good step in the right direction to boost the economy and send a clear message to both the market and to consumers.  This strong rate cut will help lower mortgage interest rates and lessen the burden of adjustable-rate loans that are resetting in the current environment.  It also could help stimulate business investment in the wake of market uncertainties.  We commend the Federal Reserve Board on its bold action, but at the same time we urge it to keep a close watch to see if additional action is needed.”