The minutes from the last FOMC meeting indicated the Fed’s next move in interest rates will be higher. I can see it now: the dirty dozen sitting at their big table, with all their fingers and toes crossed as they made perhaps the most ridiculous utterance of all time. There is no way the Fed is going higher on rates anytime soon. If anything, they are likely to be forced to go even LOWER than the 2.0% current Fed funds rate. Reasons include an economy that is now almost entirely dependent on cheap money, an ongoing financial crisis, and the biggest reason of all – the housing market. The statement on raising rates was made entirely as an excuse to keep the staged rally in the Dollar going a bit longer. Remember, the mainstream press announced the upcoming rally back in April. We’re just following their playbook here.
In other news, housing bulls are excited that new home sales picked up just a tad this past month. This news came as prices fell at a record pace. Makes sense guys. However, mortgage rates really aren’t cooperating at this point, with 30 year money going in the mid 6% range for prime borrowers. This ties directly into the Fed’s course of action. They must keep the spread between borrowing costs and lending costs as high as possible in order to try to save banks. However, if mortgage rates are too high, then defaults and foreclosures will get worse. If the PPT buys the long end of the yield curve to bring down mortgage (bond) rates, they kill the banks by cutting the interest rate spreads – UNLESS they go lower on the short-term rates to try to maintain the spread. No my Dear Watson, the Fed is not raising rates anytime soon.