Money Matters, Simplified.
Mortgages split Fed members' opinion
by Jamie Anderson - January 7, 2010 - comments
Some members of the central bank have expressed concern that withdrawal of the Fed's policy of easy money might endanger a recovery from the worst economic slowdown since the Great Depression
New York, January 7 -- The minutes of the central bank's meeting held on Dec. 15-16 last year were released Wednesday after the standard three-week gap.
Overall, the Fed has held its policy stable and has made only minor and that too cosmetic, changes to its policy statement.
Unemployment rate to remain elevated
The minutes indicate that the Fed is of the judgment that the U.S. economy will witness a modest recovery this year. The nation will undergo only a "slow improvement" in the ruthless unemployment problem.
The pace of job losses slowed markedly in the last few months, and total hours worked increased in November.
"The weakness in labor markets continued to be an important concern to meeting participants, who generally expected unemployment to remain elevated for quite some time," avers the Fed.
Inflation to be checked
The summary of the meeting also suggests that the Fed is in no hurry to raise short-term interest rates, which are currently near zero levels.
"On one side are Federal Open Market Committee (FOMC) members who are more worried about the high unemployment rate and less worried about inflation," analyzed Augustine Faucher, an analyst at Moody's Economy.com.
"They look at all of the excess capacity in the economy and state that this will keep inflation under control," noted Faucher.
Mortgages remain moot point
The unanimity amongst Fed members ends when it comes to how to handle some of its emergency stimulus measures.
The minutes of the meeting do not name or identify who said what during the two-day policy-setting meeting.
It however clearly reveals that the Federal Reserve policymakers were divided in opinion on whether to expand or cut back on the program intended to drive down mortgage rates and boost the housing market.
In its September meeting, the Fed had decided to slow the pace of the purchases, completing the activity by March of 2010 rather than the end of 2009.
Therefore, the schedule to complete the purchase of $1.25 trillion in mortgage-backed securities in three months time stays put.
“The March deadline is artificial and should not hold firm. Maybe we’ll need this stimulus until May or autumn,” maintained Lawrence Yun, chief economist for the National Association of Realtors.
David Crowe, chief economist at the National Assn. of Home Builders opines that the mortgage rates will rise when the central bank program expires. This surge could threaten the fragile housing recovery.
The tax credit for home buyers, already extended by the Congress once, is also scheduled to end on April 30.