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The Fed Halts Rate Increases; Good Or Bad?

The Fed Halts Rate Increases; Good Or Bad?

Yesterday, the Fed announced that there will be no more rate hikes in 2019.

And many people in the mortgage and real estate industries cheered.

But a lot of economists and Fed-watchers are more worried than ever.

Here is just one of many articles (from the WSJ) I read today illuminating serious concerns.

The Fed has the toughest job in the world.

It needs to build up enough ammo to fight the next recession without actually causing the next recession.

The Fed’s ammo includes interest rate reductions and “Quantitative Easing” (creating money by buying bonds).

The problem for the Fed is that it needs to lower rates 4% to 5% to effectively help the economy when a recession hits.

But, the Fed Funds rate is only 2.5% today, and if the Fed raises rates any more they could cause a recession.

So, that leaves more Quantitative Easing as a likely option when the next recession hits.

But that too may be less than effective b/c the Fed still holds almost $4 trillion in MBS and Treasuries, down a little from but still close to its peak holdings of $4.5 trillion.

So, what does all this mean for those of us in the real estate and the mortgage industries?

It means the sun will shine a bit brighter this year for all of us.

But, the more the Fed artificially induces bright sunshine now, the longer the sun will be behind a cloud in the future.

So, like the Portuguese biscuit maker who just keeps making biscuits no matter what the economy does, we should all do the same – as fast as possible :).

B/c our current economically sunny weather won’t last, and we need to be ready for the cloudy weather that is certain to come and that will likely now last even longer.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646