Tri-Valley Mortgage News

As I briefly discussed earlier today the Federal Reserve increased the Discount Rate by .25% after the market close yesterday.  The full press release is available here.  As mentioned in the statement, the FED "anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period".  This should keep a lid on an aggressive upward movement of interest rates in the near term. It is good news that that they are trying to remain "ahead of the curve" on the inflation front while keeping in mind that the economic recovery is fragile.

Those of us in the Real Estate industry, as well as the general public, should be aware and engaged (no matter what side you fall on) that there is much debate on the current spending levels of the government and what they portend for the future.  On the 16^th of this month the President of the Federal Reserve Bank of Kansas City, Thomas M. Hoenig, gave a speech outlining his views on our current fiscal situation.  One brief excerpt: 

"First, the worst choice for our long-term stability, but perhaps the easiest option in the

face of short-term political pressures: We can knock on the central bank's door and request or

demand that it "print" money to buy the swelling amounts of government debt. Second, perhaps

more tolerable politically, although damaging to our economy: We can do nothing so long as

domestic and foreign markets are willing to fund our borrowing needs at inevitably higher

interest rates. Or third, the most difficult and probably the least palatable politically: We can act

now to implement programs that reduce spending and increase revenues to a more sustainable

level."

The full speech(11 pages double spaced) is worth the read.  As this year moves on we are all expecting higher rates and hope that the powers that be are able to successfully walk a very fine line in the aftermath of one of the most trying times for the financial markets in the history of our country.  As the FED begins to unwind the quantitative easing, remove stimulus programs and put us back on a more traditional path it is my hope to see the return of normally functioning markets sooner rather than later.