My Mortgage Blog

Consider a few events from recent economic history. Some time ago, when Ben Bernanke was still Chairman of the Federal Reserve, the Fed (as you doubtless recall) was busy buying about $85 million dollars' worth of Mortgage-backed securities each month. That kept the market for such securities very alive, you will recall, and was a very effective way of keeping interest rates quite low.

Now, while it was extremely enjoyable to have 30-year mortgage rates fall below 4%, the Fed felt the party had to come to an end at some point, so it announced that it would soon start to buy fewer securities and start the process of bringing an end to this program. This was not surprising news too anyone, but the stock markets fell dramatically, as if their sources of income had just been cut off.

The markets recovered, but they moved rather weakly, never managing to get convincingly higher--or lower, for that matter. We have been wandering along the economic path in apparent expectation of another shoe falling, it seems. But none really has. At least, not yet.

Once the new occupant, Janet Yellen, was installed as chairperson (formally referred to as Fed Chair), the next market-moving announcement was widely anticipated. With the end of the Fed's program of buying up Mortgage bonds concluded, investors anticipated that the Fed would start forcing shorter-term rates a bit higher, allowing them to reach the levels where they probably would have been all along without the Quantitative Easing program's effects.

In recent weeks, it became more and more obvious that the Fed planned to raise interest rates somewhat. It even seemed that the stock markets would find such a move relatively acceptable. But the Fed had a new problem--and it had a lot to do with real estate.

Specifically, the production numbers for real estate--the number of homes selling and being built--though they rose occasionally, generally remained in the doldrums especially new home construction. The real estate market, like it or not (and, frankly, I don't) just isn't performing very well. Those fabulously wealthy investors who bought up billions of dollars' worth of single family homes to rent and, someday, to sell, may be doing extremely well as rents and home values rise. But the overall market just can't gain lift-off for more than a few occasional seconds.

So the Fed is holding back its tapering of the program that keeps rates low. We’re more confused than we were before, frankly.

And here’s a remarkable example of the confusion. Yellen suggested that we'd know the Fed was seriously thinking about pushing rates higher when it removed the word, "patient," from its explanation that it would move slowly and with certainty to raise rates. At the last Federal Open Market Committee meeting, it did indeed remove those words, having backed itself into a corner it could not evade. But to remain somewhat true to itself, Yellen announced, "Just because we removed the word 'patient' from the statement doesn't mean we are going to be impatient."

It’s a fancy way, we suspect, of saying, "Oh, shut up," to critics complaining that rates should now be rising, but aren't. Such is the confusion facing our economy these days.