It’s January 2008, and the Federal Reserve finds itself in the precarious position of being between a rock and a hard place. The Feds need to decide between helping to spur the economy through continued cuts to the Federal Funds Rate versus a potential increase in inflation due to those rate cuts.

Fast forward to July 15, 2008 where the Federal Reserve finds itself (once again) in an unenviable position.  The concerns over inflation have been met. The series of rate cuts designed to help stimulate the economy are now hampering it as the Dollar loses value, oil prices are at record levels, energy costs rise, and the cost of food is increasing as well. The year-over-year inflation report had its largest jump in a year-to-year comparison since 1981.  

Why is this happening?  See this previous post for more details, but for a quick summary:

-- When the Feds lower rates, the value of the Dollar goes down. A decrease in the value of the Dollar means it takes more Dollars to buy the same amount goods.

-- Oil is traded in Dollars and as the value of the Dollar decreases, oil prices go up. We are now seeing record oil prices and gas prices over $4 a gallon.

-- A gas prices go up, food costs rise because it costs more money to get food to the local grocery store.

This doesn't even take into consideration how oil prices are affecting the price of corn. To help reduce gas consumption, ethanol is now being used as an additive to gas. Corn is used to produce ethanol, and corn prices have increased from about $3.50 in 2007 to over $7 in 2008. This increases the cost of feed for cows and chickens, which increases the cost of dairy products.

What can the Feds do to combat inflation? Begin raising the federal funds rate. Easy, right? Well, not exactly.

While rates do need to be increased to combat inflation, increases to the federal funds rate will put more pressure on banks and the lending market. This, in turn, would put more pressure Fannie Mae and Freddie Mac, who are the linchpins for the lending world (more on Fannie and Freddie later this week).

So, what will the Federal Reserve do? Increase rates to fight inflation at the possible cost of putting more pressure on the lending market, or keep rates steady resulting in less pressure on banks but at the potential cost of more inflation.

Either way, the Feds could hurt the economy as they try to help it. Glad this is a decision I don’t have to make.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

As an inflation hawk, I have been a bit careless with my recommendations to raise interest rates and I have not sufficiently answered those who are concerned with unemployment and the fragility of the economy. Thus, allow me to elaborate.

In a recent Bloomberg interview, Nobel laureate Ned Phelps wondered aloud whether or not the Fed understands anything about modern monetary policy. What Phelps was communicating is the fact that the Federal Reserve seems unable to distinguish between transitory changes in unemployment and those driven by structural changes in the economy. As Phelps rightly pointed out, the collapse of housing boom has created a restructuring within the economy. It is highly probable therefore that the natural rate of unemployment has risen. If so, any attempt by the Federal Reserve to combat rising unemployment with lower interest rates will prove to be futile. In light of such thinking, it is quite understandable that talk of rising unemployment in the FOMC statement was particularly troubling.

Worries about the credit markets are similarly overblown. So long as the Fed stands ready to serve as lender of last resort, a task they have admirably performed thus far, further crisis should remain averted even in the midst of higher interest rates.

Bernanke and the FOMC made a mistake by not raising interest rates on Wednesday (as indicated by the rising prices of gold, oil, and other commodities). The rise in unemployment is not temporary and therefore need not be of concern to the Fed. In the meantime, global inflation and inflationary expectations are on the rise. Let's hope that the Fed doesn't make the same mistake when August rolls around.

CPI data

The good news today is that there is "significant improvement in the credit markets since late March," according to the Wall St. Journal.

The bad news, also reported by the Wall St. Journal, is that this recent thaw in the credit market is not expected to last:

"'Most of us are anticipating two steps forward, one step back and carefully watching where the markets can handle deals,' said Tyler Dickson, who oversees capital raising at Citigroup."

"'There's no question the tone in the market is getting better,' says Jim Casey, co-head of leveraged finance at J.P. Morgan Chase.  He adds, however, that 'there is some concern that this might be a short-term window of opportunity for issuers, since investors are still very focused on default rates and the potential severity of a recession.'"

"'Risk tolerance is still pretty low,' says Daniel Toscano, a managing director of leveraged and acquisition finance at HSBC Securities in New York."

"Banks and debt investors are treading carefully," the article said. "Investment banks, which incurred big losses after selling a lot of buyout debt at heavily discounted prices, are committing only to deals they can underwrite at a profit. And investors don't want to be caught wrong-footed if corporate defaults spike."

We think that the report of a credit thaw is premature.  For most businesses and individuals, the credit market is still frozen solid. 

Blackstone Group LP President Tony James appears to agree with us.  James told Bloomberg News that banks are mistaken if they think credit markets have begun a sustained recovery. 

Rather than a real break in the dismal credit forecast, James said that this little patch of sunshine may be "the eye of the hurricane."

There is clearly no de-icing of the credit market that would significantly impact the housing crisis or allow Fed Chair Ben Bernanke to sleep without getting the chills at night.

Of course, there are those who strictly oppose nearly all forms of government intervention in the economy.  Congressman and presidential candidate Ron Paul and his free market libertarian supporters would be among this group.

Then are those who are opposed to market interventions in general, but will support some government interventions when the stability of the market is at stake.  Most Republicans fit into this group -- including Federal Reserve Chairman Ben S. Bernanke.

That's why it was significant that it was Bernanke who last week made the most convincing argument from a free market perspective for federal aid to homeowners facing foreclosure.

As we noted in an earlier post, Bernanke told an audience at the Columbia Business School that the foreclosure crisis posed the clear and present danger of wreaking economic havoc far beyond the housing market. "High rates of delinquency and foreclosure," Bernanke said, "can have substantial spillover effects on the housing market, the financial markets, and the broader economy."

What is at stake, according to Bernanke, is not merely the homes and financial well-being of hundreds of thousands of borrowers, but "the stability of the financial system."  In this extreme circumstance, even staunch free market advocates, such as Bernanke himself, recognize the need for the government to intervene in the market.

We think, then, that the overwhelming vote in the House of Representives in favor of government intervention to stop the rising tide of foreclosures -- legislation that now has the support of many free market Republicans -- was rooted at least as much in the economic reality of averting catastrophe as the political expediency of government largess in an election year.

Who then is still opposed to foreclosure aid?

The answer is the apartment owners.

Behind any legislative process is a power struggle of conflicting interests, and very often these interests are economic.  In the case of foreclosure aid, there this now a growing consensus that the foreclosure crisis threatens not merely the borrowers and the lenders, but the economy as a whole and hence the economic interests of almost every sector of the economy.

Except apartment owners.

The National Multi-Housing Council (NMHC) and the National Apartment Association (NAA) have consistently argued that the blame for the foreclosure crisis is what they have called the “misguided” national policy of “home ownership at any cost” and that "People were enticed into houses they could not afford and the rarely spoken truth that there is such a thing as too much homeownership was forgotten.”

The fact is that in sharp contrast to other sectors of the real estate market, the apartment industry has not suffered as a result of the current housing crisis.  Rather, as we've noted before, the real estate crisis is forcing the lower end of the single-family housing market back into multi-family rental apartments.  People have to live somewhere -- if they can’t afford to live in a house that they own, they will be forced to live in a house that someone else owns, such as multi-family apartment units. As homeowners suffer, apartment owners benefit.

The apartment industry has some very powerful supporters in Congress, including Senator Richard C. Shelby of Alabama, the ranking Republican on the Senate Banking Committee.   Senator Shelby,  who has opposed federal intervention to stop foreclosures, has made millions as a landlord and is the owner of a 124-unit apartment complex in Tuscaloosa called the Yorktown Commons. 

“I want the market to work if it can, and most of the time it will, but not without some pain,”  Senator Shelby has said.

This time, the pain appears to be too great, too wide-spread, and too dangerous, for most other members of Congress, as well as most important players in the economy, to allow it to continue unabated.

Indeed, Shelby has already signaled that he would support a version of the legislation -- and that the White House would sign the bill into law.

"I think if we reach a compromise," Shelby said, "it would be acceptable to the White House because, as a Republican and former chairman of the committee, I'm going to do everything I can, work with the administration, to make sure that the program works for those it's intended to do and make sure we can afford it as a nation."

In this crisis, even Senator Shelby has other, larger, and more important economic interests at stake than helping the apartment industry.

"High rates of delinquency and foreclosure," Bernanke said, "can have substantial spillover effects on the housing market, the financial markets, and the broader economy."

Bernanke began by detailing some of the nasty numbers of the foreclosure crisis:

• About one quarter of subprime adjustable-rate mortgages are currently 90 days or more delinquent or in foreclosure.
• Foreclosure proceedings were initiated on some 1.5 million U.S. homes during 2007, up 53 percent from 2006.
• The rate of foreclosure starts is likely to be even higher in 2008.
• Delinquency rates have increased in the prime and near-prime segments of the mortgage market.

He then warned that the catastrophic effects of these millions of foreclosure proceedings will extend far beyond the parties to the mortgage:

"It is important to recognize," Bernanke said, "that the costs of foreclosure may extend well beyond those borne directly by the borrower and the lender.  Clusters of foreclosures can destabilize communities, reduce the property values of nearby homes, and lower municipal tax revenues.  At both the local and national levels, foreclosures add to the stock of homes for sale, increasing downward pressure on home prices in general." 

"In the current environment, more-rapid declines in house prices may have an adverse impact on the broader economy and, through their effects on the valuation of mortgage-related assets, on the stability of the financial system."

The real threat that the foreclosure crisis posed to the overall economy, Bernanke said, was "the declines in home values, which reduce homeowners' equity and may consequently affect their ability or incentive to make the financial sacrifices necessary to stay in their homes."

The responses to the foreclosure crisis specifically endorsed by Bernanke were nothing new --  working with community groups trying to acquire and restore vacant properties; encouraging lenders and mortgage servicers to work with at-risk borrowers; developing new lending standards to prevent abusive lending practices; working with the Bush administration's Hope Now Alliance; expanding the use of the Federal Housing Administration (FHA) and government-sponsored enterprises such as Fannie Mae and Freddie Mac to address problems in mortgage markets.

But we think that the tone and perspective of his speech signaled that he was far more ready than the current administration to endorse a wide-ranging federal program to aid homeowners who are in default.

Bernanke came close to saying as much:  "Realistic public and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment."

We think by "traditional foreclosure avoidance strategies" Bernanke meant voluntary procedures undertaken by the financial market itself; the "non-traditional foreclosure avoidance strategies" that Bernanke suggested might be necessary would then be mandatory procedures imposed on the market.

We therefore think that Bernanke's speech contained a threat to the very financial institutions that the Fed has been so generous toward for the past six months.

So far, lenders have been asked to voluntarily help stem the foreclosure crisis by working with homeowners.  Now it appears that Bernanke may be close to supporting mandatory restraints on foreclosures.

We think Bernanke may have been saying this to the lenders and the leaders of the financial market: "We've made billions of cheap dollars available to you, so that you could stay afloat and so that you could make this money available for new borrowing and refinancing to prevent foreclosures.  You have not kept your end of the bargain.  If you don't move much further along this path soon,  it is in the interest of the US economy overall to force you to do so."

The lenders and financial institutions haven't listened to threats from Congressional Democrats like Barney Frank or taken the voluntary actions requested by the Bush administration.

Maybe they'll listen to today's warning by Ben Bernanke.

We think they'd better.

We're not so sure that it is a question of recession verses inflation that's driving the Fed.

We think that the Fed's real concern right now is neither inflation nor recession, at least not directly, but the lack of liquidity in the financial markets and the lack of funds that financial institutions are making available to borrowers.

So far, the Fed has pumped more than $400 billion into major U.S. financial institutions in the hope that these institutions would make this money available to borrowers. 

And, so far, they haven't done so, and liquidity conditions in the credit markets have continued to deteriorate. 

Despite the Fed's inceasing generosity for the past six months, it has been harder, not easier, for businesses (and individuals) to borrow money.

The Fed is nearing the end of its rate-cutting line.  If the financial spigot does not loosen for borrowers based on the latest cuts, there may be no more that the Fed can do, especially since, with rising fuel and food prices, fears of inflation are already starting to overtake fears of recession, in America's living rooms as well as its Board rooms.

Two members of the Fed's Open Market Commitee  — Richard W. Fisher, president of the Dallas Fed, and Charles I. Plosser, president of the Philadelphia Fed — which is charged under federal law with overseeing national monetary policy — voted against lowering the rates this time.  And the criticism of the Fed's policy of lowering interest rates and providing cheap money for the banks is getting broader, louder and more influential.

The banks and major lending institutions have been waiting for the Fed to cut interest rates as far as it possibly would before they start lending.

That moment has probably arrived.

Now it's the financial market's turn to make a move.

The first “Pirates” movie was amazing! The sequel, unnecessary. The third one, ridiculous!

As much as I love “Captain Jack,” I hope this franchise is finished!

How will this affect rates? The previous six rate cuts caused the bond market to lose 78 or more basis points in the next few days following the cut. The drop in bond prices forced mortgage rates up. However, this time things could be different.

If this is indeed the last cut, it may actually strengthen the bond market, and the initial market reaction supports this theory. Since the rate cut announcement this afternoon, bonds rallied from a deficit to finish over 40 points ahead on the day while stocks lost over 100 points to finish in the red. This caused mortgage rates to improve over the course of the day.

Why the change for the bond market? The previous rate cuts also came with multiple hints of future rate cuts. Continued speculation of future cuts -- the fire that stokes inflation – caused bonds to react negatively. Since the Feds statement today said this is it, bonds are reacting more positively knowing that Feds are done with cuts, which will help tame inflation. It will be interesting to see how this plays out the rest of the week, especially with the Feds favorite economic report for reading inflation being released tomorrow.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

The Federal Reserve has cut the federal funds rate to 2.25 percent from 5.25 percent, amounting to seven reductions over a span of eight months, and experts anticipate another 0.25 percentage point cut at its April 29-30 meeting. However, experts think the central bank could take a breather after the next rate cut to give officials time to assess the impact of rate reductions, upcoming tax rebates, and other measures on the economy during the latter half of the year. Moreover, there are concerns that further reducing the federal funds rate could increase inflationary pressure and weaken the dollar even more.

Despite rising food and oil prices, officials point to some improvements in the financial markets, with the 30-year mortgage rate on the decline; however, they note that stricter lending standards could worsen the downturn. The statement issued by the Fed after its meeting likely will point to ongoing concerns about economic growth and inflation and suggest that additional rate cuts will be made as necessary.

So what do we see?

1. An extremely busy FED. They have used unprecedented measures through the various market tools (discount window, setting the Fed Funds target rate, TAF, OMO’s, TSLF, PDCF) to stabilise the financial markets, provide the necessary liquidity and stopping the crisis from spinning even further out of control.

2. On every Fed action, the stock market rallied impressively. The Dow Jones Industrials did not re-test the January low - when the Fed cut rates by 75b.p.s

3. The market rallies on a USD19bn write-down from a major international investment bank? What is this telling us? Is there a shift in sentiment taking place following the events listed above? Remember, stocks were not at the core of the crisis. This is a mortgage, credit and banking crisis, not a stock market crisis. That is why it was slow to “catch up” on the way down in the summer and autumn of 2007. That is also why it is likely to be the first market to progress out of the crisis. With this in mind, if you believe that the dramatic financial market events of the past three months are unlikely to be repeated in this downturn then it is very likely that those lows in the stock market will not be seen anytime soon.

More importantly the interest rate cuts and the Fed’s market operations has meant that 2 year yield are now only inverted by -29 b.p.s to Fed funds from and extreme of close to -200 b.p.s in January ‘08. With the ST outlook for 2 year yields to rise further, we are now close to a more normalised environment where 2 year yields could be above fed funds for the first time since June 2006.

Let’s not underrate the Fed’s actions since January and let’s not turn a blind eye to the market’s reaction.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20080404/OPINION01/804040313/1007/OPINION

Fed tries to shake stubborn rates with cut

Sam Zuckerman, SF Chronicle Staff Writer
Wednesday, March 19, 2008

Chairman Ben Bernanke and his fellow Fed policymakers approved an unusually large 0.75 percentage point cut in the federal funds rate, which serves as a benchmark for short-term loans such as adjustable-rate mortgages. The move followed a series of unprecedented steps taken by the nation's central bank over the last week - including engineering the sale of near-bankrupt Wall Street giant Bear Stearns Cos. - aimed at shoring up a financial system shaken by huge losses in the housing market.

After the Fed's move, stocks staged one of their biggest rallies in years. Major market indexes rose more than 3.5 percent, a signal that the Fed has succeeded in easing immediate fears of a financial system breakdown.

But while the Fed may have patched the financial world, economists say it is having a lot harder time carrying out its primary task: restoring economic growth.

The problem is that cuts in interest rates - the central bank's basic tool for boosting the economy - aren't working their magic. Simply put, when the Fed lowers its benchmark, which governs the rates banks charge each other for overnight loans, rates on many of the kinds of credit that really count in the everyday economy aren't following suit. Those include fixed-rate mortgages and corporate and municipal bonds.

In six months, the Fed has cut its federal funds rate from an annual 5.25 percent to 2.25 percent, including Tuesday's downward move. But the rates households and businesses pay to borrow money have stubbornly stayed high.

Banks cut back

"The rate cuts have not had much of a favorable effect," said David Jones, chief executive of Florida financial consulting firm DMJ Advisors and author of a book on the Federal Reserve. "There's so much risk in the market that banks are cutting back their lending to Joe Sixpack."

Banks "did not adjust as the Fed adjusted," said Michael Shapiro, a financing expert at Cartelligent, a Sausalito new car buying service. "The majority of banks didn't do any cuts. And, if they did, it was by 0.25 or 0.5 (of a) percentage point."

The financial system depends on a steady flow of loans between financial institutions. But in recent months, institutions became reluctant to lend to each other out of fear that housing-related losses would make big financial players unable to make good on loans.

Fed officials view such a freeze-up of the financial system as a dire threat to the economy and have gone all out in the last week to keep the market functioning. The central bank has done things it's never done before, such as lending money to brokerage firms and taking mortgage securities as collateral. And it forced the sale of Bear Stearns to rival JPMorgan Chase & Co., guaranteeing the buyer against losses, to head off an imminent failure of the firm to pay its creditors.

"We could have had total financial market meltdown had they not taken those weekend actions," Jones, the financial consultant, said.

Thanks to the Fed, total financial market meltdown may be delayed for as long as days, or even months.

Why the change in the trend? Eventually rate cuts produce inflation. Even with the tame inflation numbers from this month, inflation is becomming a much bigger story and may wind up dominating the mortgage backed security bond market in the coming months.

Rates could even get worse over the next coming days. Take a look at the chart below of the bond market the last time the fed rate was cut -- Jan 30, 2008.

The bond market continued to plummet for weeks after the cut before finally fighting back. This pushed mortgage rates up 0.75% of a point during the first few weeks of February.

What does this all mean for rates now? Well, if history is any indication, rates are more likely to get worse before they get better. Anyone waiting for a good day to lock in a rate for a purchase or a refinance -- today is your day!

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

The Fed's action takes the bellwether federal funds rate target to 3 percent, the lowest since June 2005, and comes just eight days after it slashed rates by a bold three-quarters of a point. Wednesday's follow-up reduction was in line with the expectations of many financial market participants.

The cumulative 1.25 percentage point reduction in the benchmark overnight rate in less than two weeks ranks among the most abrupt rate-cutting sprees in the modern history of the U.S. central bank.

The vote to lowe

As the Fed rate continues to impact interest rates on home mortgages, we are likely to see a wave of refinancing over the coming months. Someone told me it's not worth refinancing unless you can get at least 2% lower than your current rate, but I'm not sure the potential value can be calculated in such a straightforward way for everyone. Thoughts?

A: FOMC降的是 Federal funds rate 「聯邦資金利率」的目標！

Q: Federal funds rate 應該怎麼翻譯？

A: Federal funds rate 應該翻譯成「聯邦資金利率」！
   請看沈中華(1988:542)的說明：

... 美國的聯邦資金利率(Federal Funds Rate)，即我國的同拆利率...
當銀行的準備金不足，銀行就到銀行同拆市場去借錢，支付的利息即為同拆利率...

Q: 為何不應被翻譯為「聯邦基金利率」？

A: 一個「基金」指的是一筆湊在一起而有特定用途的錢
一個「基金」指的是一筆湊在一起而有特定用途的錢
－－譬如「學生急難救助基金」或「共同基金」(mutual fund)。
而 federal funds rate 中的 funds 所指的是在銀行之間互相借貸市場中流動的「資金」！

Q: 為何不應被翻譯為「聯邦基準利率」？

A:  "Federal funds rate" 一詞中並無「基準」之涵意！

Q: 為何不該說「聯準會降息」？

A: 請看前一篇

誰降息？聯準會？錯！ Fed 不等於 Federal Reserve Board 不等於 FOMC！

Q: 有何政府官方文件可以參考？

A: 此文件解釋：
   由FOMC決定「公開市場操作」Open Market Operation（聯邦準備系統的主要政策工具）的短期目標－－包含Federal funds rate:
http://www.federalreserve.gov/fomc/fundsrate.htm

... The short-term objective for open market operations is specified by the Federal Open Market Committee (FOMC). This objective can be a desired quantity of reserves or a desired price (the federal funds rate). ...

而Federal funds rate 的意義是：

... The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

該網頁也提供了1990以來的Federal funds rate 的「目標」。

相關新聞：

楊伶雯 (2008.01.23 18:08) FED降息／一連串降息效應 債市多頭可期 ETtoday.com
http://www.ettoday.com/2008/01/23/10844-2221883.htm

參考資料：

沈中華 (1998) 《貨幣銀行學》，台北：新陸書局。

未來事件交易所連結：

美國聯邦資金利率目標_2008.01
http://nccu.swarchy.org/contract_groups/197

A: Federal Open Market Committee (簡稱：FOMC)！
請見以下美國政府官方文件：
2008年1月22日FOMC Policy Statement:
http://www.federalreserve.gov/newsevents/press/monetary/20080122b.htm

The Federal Open Market Committee has decided to lower its target for the federal funds rate 75 basis points to 3-1/2 percent.
...

Q: 如何翻譯FOMC

A: 沈中華教授(1988:407)的翻譯為：「聯邦公開市場委員會」
請看：
http://www.federalreserve.gov/monetarypolicy/fomc.htm

Q: 新聞媒體應該如何更正「聯準會降息」的說法？

A: 「聯邦公開市場委員會降息」！或至少更正為「聯邦準備系統降息」！

Q: 為何「聯邦準備系統」不該被簡稱為「聯準會」？

A: 聯邦準備系統包含12家區域聯邦準備銀行和由7位理事組成的聯邦準備系統理事會。
請看About the Fed
http://www.federalreserve.gov/aboutthefed
和這張Federal Reserve System 組織圖
http://www.federalreserveeducation.org/fed101/structure/

Q: 如何翻譯 Board of Directors of Federal Reserve System (簡稱：Federal Reserve Board)？

A: 建議之全名翻譯：「聯邦準備系統理事會」，建議之簡稱翻譯：「聯邦準備理事會」。

Q: 如何翻譯 Federal Reserve System (簡稱：Federal Reserve 或 Fed)？

A: 建議之全名翻譯：「聯邦準備系統」，建議之簡稱翻譯：「聯邦準備」。

Q: 聯邦公開市場委員會FOMC 和聯邦準備系統理事會 Federal Reserve Board 有何差別？

A: FOMC成員除Federal Reserve Board 之七位理事外，還包括五位地區聯邦準備銀行總裁。
請見：The Structure of the Federal Reserve System: The Federal Open Market Committee
http://www.federalreserve.gov/pubs/frseries/frseri2.htm

Q: 有何中文參考資料？

A: 沈中華 (1998) 《貨幣銀行學》，台北：新陸書局。
第十五章「中央銀行」第六節「美國聯邦準備制度」。
特別是：
圖15-6「美國聯邦準備制度的正式組織與其貨幣政策工具之間的職掌關係」。

黃富櫻（2004），「美國Fed 的公開市場操作黃富櫻摘要」，國際金融參考資料第50輯，80-134。
http://www.cbc.gov.tw/economic/publication/ifd/ifd-50/國金508.pdf

Q: 希望記者與讀者回應之問題？

A: 不知道誰是「聯準會」這個混淆不清的譯名的始作俑者？
為何不直接使用英文原文就好，卻要使用混淆不清的翻譯？
有什麼方法可以停止新聞媒體繼續「以訛傳訛」？
相關新聞：

黃貞貞 (2008.01.23) 金融時報：Fed降息決定正確 風險伴隨而來 中央社
http://news.yam.com/cna/fn/200801/20080123408821.html

陳家齊 編譯 (2008.01.23) Fed急降息3碼 股市暫喘息 經濟日報
http://udn.com/NEWS/FINANCE/FINS4/4192195.shtml

謝錦芳、陳怡慈 (2008.01.24) 情況太糟 市場預期月底再降2碼 中國時報
http://showbiz.chinatimes.com/2007Cti/2007Cti-News/2007Cti-News-Print/0,4634,110501x112008012400106,00.html

楊伶雯 (2008.01.25 09:42) FED降息／市場動盪不安 公債成資金避風港 ETtoday.com
http://www.ettoday.com/2008/01/25/185-2222672.htm

未來事件交易所連結：

美國聯邦資金利率目標_2008.01
http://nccu.swarchy.org/contract_groups/197

The federal funds rate has a direct impact on the rate at which banks borrow and lend money. The Fed rate determines prime rate, which follows along with the federal funds rate. For instance yesterday, the Fed rate dropped from 4.25% to 3.5%, and prime rate followed by dropping from 7.25% to 6.5%. Banks use prime rate to determine rates for 2nd mortgages, home equity lines of credit, credit cards and car loans.

While this is helpful for 2^nd mortgages, 1^st mortgages generally suffer. I know what you are thinking -- but why? There are some reasons, and I will list them below. First remember mortgage rates are determined by the mortgage-backed securities bond market. When more money is invested into bonds, bond prices go up, and mortgage rates go down. However, when more money is put into stocks, less money goes into bonds… bond prices go down… mortgage rates go up… etc.

With that in mind, here are the ways in which cuts to the federal funds rate tend to hurt 1^st mortgage rates:

- Federal funds rate cuts increase investing: If banks (and people) can borrow money at a cheaper rate, they are likely to increase their investments in the stock market. This means that more money is being put into stocks, and less money goes into bonds (not to mention money being taken out of bonds to invest in stocks). This action causes bond prices to go down and mortgage rates go up.

- Federal funds rate cuts cause inflation. Again, if banks (and people) can borrow money at a cheaper rate, this leads to an increase in spending. With an increase in spending, the demand for products and services increases, which drives up the prices of those products are services – otherwise known as supply and demand. The increase in price is inflation, and bonds hate inflation because it hurts the value of the U.S. Dollar. If it costs more money to buy the same goods or services today than it did yesterday, it means the Dollar has lost some of its value. Again, bond prices go down and mortgage rates up.

- Federal funds rate cuts decreases the value of the U.S. Dollar: Inflation hurts the value of the Dollar, which also makes foreign goods more expensive to buy. This may be all well and good for individuals concerned about our trade deficit, but it still costs more money for companies to buy the same products that they turn around and sell to us in stores. The price increase is passed on to us, the consumer.

Right now the bond market is doing rather well. This is due primarily to the slowing down of our economy, which has led to the Feds making several cuts to the federal funds rate. At some point, these cuts will catch up to the bond market and rates will go up. This is why I advised anyone looking to refinance or purchase a home to consider locking in sooner rather than later. Take advantage of the gains in the market that have put us near all-time record lows for fixed rate mortgages before the market turns around.

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

First, the decision to cut or raise the Federal Funds rate is normally decided at regularly scheduled meetings. The next meeting takes place on Jan 30^th. Second, the size of the cut is, well, shocking. This is the largest rate cut since 1991 and was done to help spur on a slumping US economy and ease fears of an economic recession.

Typically rate cuts produce a surge in the stock market and losses in the bond market. However, the combination of an inter-meeting cut along with the size of the cut produced mixed results. The stock market started the day down over 400 points, and the money coming out of stocks went into the bond market. Over the course of the day, stocks have made up most of the losses (finishing 128 points down) while bonds continued to gain some ground. However, the lasting effects of today’s cut (post-market-knee-jerk) may take a day or two to sort out. In fact, if not for the cut, the early losses of over 400 points may have only been the beginning.

So even at the end of the day, we still have mixed results. Investors may be viewing the unexpected and significant rate cut as a sign that the economy is in worse shape than previously thought and the Feds are acting out of desperation. However, the rebound in stocks over the day may signal brighter days ahead.  Also, inflation is still a concern, and could work against mortgage rates.  We will get some insight into inflation toward the end of next week when some economic reports are released. As I blogged a couple of weeks ago, it will be interesting to see how this all plays out.

What should you do in a volatile market? If you are refinancing or buying a home, I would consider locking in your rate soon. The bond market has performed well several weeks in a row, and this run won’t continue forever. Taking advantage now of the gains in this volatile market instead of waiting for rates to go down may be the best course of action in the long run.

There is one indicator that will support my last claim. Even with today’s cut, Federal Fund futures still point to another rate cut at the next scheduled meeting (Jan 30). There may just be a slashing sequel to today’s cut – The Return of the Rate Slasher – making inflation figures worse, which leads to higher mortgage rates.

As a friend of mine always says… “Sometimes the bulls win. Sometimes the bears win. Pigs get slaughtered. Don’t be a pig”…

Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.

In a surprise move, the FOMC lowered the Federal Funds Rate by .75%. That this happened before the FOMC's regularly scheduled end-of-January meeting, combined with the size of the cut and the willingness to aggressively cut further, indicates how precarious the Fed views the economy at this time.

What does this mean for mortgage rates? Here's an extremely popular post from last year: The Relationship Between Federal Funds Rate and Mortgage Rates.

The Fed action was the most dramatic signal it can send that it is concerned about a potential recession in the United States. It marked the biggest one-day move by the central bank in recent memory.

The Fed decision was taken during an emergency telephone conference with Fed officials on Monday night. Those discussions occurred after global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world's largest economy, could be headed into a recession.

Goldman Sachs is one of the largest investment banks in the world, and they offer their financial advising services to wealthy families, large corporations and governments. Their 2008 forecast predicts a recession for 2008 along with a growing unemployment rate to reach 6.5% by 2009. Unemployment is currently at 5.0%.

Goldman is also forecasting the Fed will continue to slash the Fed Funds rate until it reaches 2.5% by the third quarter of this year in an effort to achieve a “soft landing” for the economy.

…Interestingly enough, a couple days after Goldman released their forecast, Bernanke said the Federal Reserve would take steps to help keep the country out of a recession and would cut rates to do it…

If Goldman continues to be right, it would mean the Fed Funds rate would be cut by another 1.75% from their present level of 4.25%. Keep in mind that with every rate cut the odds increase for a rise in inflation and the weakening of the U.S. Dollar. Sadly, this is happening. Inflation figures are up and the U.S. Dollar is near all time lows versus the Euro and the Pound.

With today’s news of poor retail sales in December and Citigroup taking a $10 billion loss, as much as Bernanke says he wants to fight inflation, the Feds may not have a choice. So, which do the Feds prefer, the rock (recession) or the hard place (inflation)? It seems the economy is – for now – forcing them to choose the hard place, inflation, and the Fed funding rate will continue to be cut to stimulate the economy.

What does this mean for interest rates? It is really too early to tell, but rate cuts cause inflation to rise. Rising inflation causes mortgage rates to go up. Whereas poor economic news (and we are seeing a lot of it lately) is actually good for rates, and mortgage rates go down.

So, who is going to win? For now, the bad economic news is winning out as rates are at their lowest levels since June 2005. However, if the Feds combat this through continued and significant rate cuts, at some point inflation figures will go up, which will make mortgage rates go up. It will be interesting to see how this plays out in the coming months.