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On Tuesday the Federal Open Market Committee (FOMC) dropped the federal funds rate by 0.75% in an emergency meeting. What does this mean for mortgages? The federal funds rate does not actually directly impact fixed mortgages. Because fixed-rate mortgages are long term loans, they tend to
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1 年 ago
the mortgage industry gets its liquidity from foreign investors who buy portfolios of residential mortgages. Lowering interest rates causes the dollar to weaken and deters from foreign investors from providing this needed liquidity.
So the government steps in and provides the liquidity by printing more dollars, which causes the dollar to weaken further (and leads to a vicious downward spiral).
The correct thing to do is raise the interest rates and "correct" the excesses of the boom. Not doing so may cause a Japanese-style deflation that lasts 2 decades.
I wouldn't rejoice just yet.