My Mortgage Blog

Mortgage market update 09-22-2015

September 22nd, 2015 4:45 PM by Nick Rapplean

The obvious issue today? What can we read in the Fed's decision to neither raise nor lower interest rates?


The answer, of course, is "Not much." But--though the decision was effectively a careful avoidance of deciding--it seems to have been the right choice. Here's why.


For many months, the financial markets across the world have worried about what the Fed would do with interest rates. Note that the Fed was charged with making a decision for the world's markets, not just for those of the U.S. The various economies of the world are more closely interlocked than ever. Not only do we have to worry about what Germany or Greece will do next and how it will affect us, we also have to throw into the analysis the potential effects on foreign economies of what we choose to do.


This can be as tricky as trying to remain standing in a moving hall of mirrors. It is, further, tremendously difficult to predict where we will be tomorrow.


Keep in mind the fact that the Fed's decisions about changes to interest rates here in America can have a powerful effect on foreign markets. Higher American rates--even slightly higher rates--can push up the cost of doing business in foreign markets and that, in turn, generally means a slowdown in the sales of goods and services abroad. In other words, American companies can themselves be hurt badly if we raise the cost of borrowing and of using American money for foreign companies. That's why foreign economic leaders have for months been strongly advising the Fed to leave rates pretty much where they are.


Now, there has been an on-going argument between economists who believe our economy is strengthening enough to require raising rates enough to keep inflation from rising. Other economists, noting that we haven't seen much higher inflation for years, suggest that we don't need to base our policy on something that really isn't happening yet. But most economists, it seems, are confident that our economy will continue to firm.


Neither side won in the latest Fed decision. Indeed, that decision could be said to affirm that we just don't have a good enough idea of where the economy is headed, and we need time to figure it out. That's a refreshing humility.


Of course, what that means is a continuation of the argument. But that may be a good thing. As many have recently argued, there is no reason to rush this decision. It can wait. We can, for a change, let the national and world economies tell their stories for a while.

Whether we will benefit from the time we've been granted remains to be seen, as does the amount of time we'll have for reasoned analysis. It's an unusually important time, if that's possible, to watch the sometimes inscrutable moves of the Fed and the economy.

Posted in:Real Estate and tagged: Mortgage
Posted by Nick Rapplean on September 22nd, 2015 4:45 PM


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