Tuesday, Jan. 27
Posted 4 p.m. Eastern
Fed Begins Two-Day Meeting
The first Federal Open Market Committee meeting of 2009 commences today. It will conclude tomorrow, with an announcement expected around 2:15 p.m. Eastern time. Unlike past meetings, any action on the interest rate front is unlikely as the Fed has previously adopted a range of zero percent to 0.25 percent. With the effective federal funds rate on a daily basis well within the mid-point of that range, there is very little -- if anything -- the Fed can do with regard to the short-term interest rate directly under its control.
But what else may come of this meeting? The Fed will most certainly reiterate a commitment to keeping the federal funds rate low "for some time." Also, the Fed statement will give mention to the other measures currently being employed: purchases of mortgage-backed securities and the debt of government agencies Fannie Mae, Freddie Mac and Ginnie Mae.
Further details on the upcoming $200 billion program to breathe life into the consumer and small business credit markets, as well as the Fed's previously mentioned consideration of buying long-term Treasuries, would be welcome. But don't bet on it, particularly the latter, even though yields on 10-year Treasury notes have been creeping higher in the past 10 days.
The economic outlook is very poor, and the initial reading of Gross Domestic Product for the fourth quarter of 2008 that will be released Friday will be as unpleasant as roadkill in front of a restaurant. With renewed concerns about the banking system, the Fed statement will be heavy on references to these issues, but may come up short in specific steps to fix them.
Reader e-mail: Our first e-mail comes from a consumer asking about one of my favorite subjects, inflation.
"Well we know what CD rates are going for, but what is the inflation rate? Just thought a lot of people would want to know that. I do, thank you."
For all of 2008, as measured by the Consumer Price Index, the rate of inflation was negative 0.1 percent. But as another reader Dave said in a recent e-mail, "I see double digit inflation in the distant horizon on the back end of this great depression 2.0 due to this zero percent rate."
I won't go so far as Dave, but I do see a serious uptick in inflation on the other side of this global recession. My personal feeling is that what we're seeing now is primarily asset deflation, that is the decline in home prices, stock prices, the prices of automobiles and SUVs. Although there is a certain wealth effect to those things, they aren't the things consumers buy every day. As far as what consumers buy every day (think groceries and restaurants as a couple of examples) you're not seeing the same retreat in prices. The upward trend in prices has definitely softened, yes, but that is as much due to the fact that fuel prices have declined so dramatically. I, for one, am of the opinion that oil won't stay south of $50 once the global economic environment shows signs of life (see my 2009 prediction for oil prices). Once global growth resumes, we'll see global demand resume, and I'm speaking particularly of the emerging economies. (Full disclosure: I am invested in energy and emerging markets through mutual funds and ETFs.) I see that, and not the rampant speculation we saw last summer, as eventually driving oil prices -- and anything connected to it -- higher. Couple that with the sheer volume of government debt being issued and the speed at which money is being printed, and you have the catalysts for higher inflation down the road.
"We bought a second home in Kissimmee, Fla., with the intention of moving there. We used equity from our home in Connecticut for this 2nd home. Our intention was to sell the home in Connecticut and move to Florida. But the market is not favorable for the sale in any of the 2 States Connecticut or Florida. There (are) not jobs offered in Florida either. The house in Florida, the interest is 6.5%, we cannot refinance to a lower rate due to the (fact that it) is an upside market under water in Florida. We tried to refinance in 12/2008 with another bank to find out that we purchased for $395K with 20% down, (the) new (balance) to refinance is $310K, (but) no bank want(s) to refinance appraiser & market value of this property is $236K. We cannot sell that house, we can not refinance and we can not move to Florida due to there is not jobs there either. At least in Connecticut I am still at my jobs but we can not continue paying for two mortgages. I been trying to get some kind of help from our mortgage company ... they do not want to help because we have to be delinquent in order for them to help. Also to add to this mess taxes went up in both properties especially to Florida property is close to $5000. We need help as soon as possible we don't want to be another statistic and fall victims of foreclosure ..."
I am sorry for your predicament, and you are certainly not alone. But what you are experiencing is not unusual, as lenders and loan servicers have been so inundated with borrowers in distress that the priority goes to people that are already behind on their payments. Mortgage modifications and foreclosure prevention efforts are also being aimed at borrowers whose principal residence is in arrears. In your case, the Florida property is not a principal residence and because you're not behind, it isn't urgent enough in the eyes of the lender. Don't give up. Keep trying. One suggestion: Have you thought about renting the property, even at a steep discount, in an effort to lighten the financial burden of carrying that extra property? Every dollar a tenant pays is a dollar you don't have to come up with on your own. Good luck.