Why SKREAM?

That is the question many of us in the Real Estate and Mortgage industries are paying close attention to. While Federal Reserve Chairman, Ben Bernanke said he doesn’t expect the central bank to sell its stock pile of mortgage securities anytime soon, Kansas City Federal President Thomas Hoeing, voted against the Fed’s latest statement, saying he thought economic conditions had improved enough so that the Fed should not be promising low rates for an “extended period”. He was the first dissenting vote among Fed policymakers since Jan 2009.

Bernanke stated he currently does not anticipate that the Federal Reserve will sell any of its security holdings in the near term, at least until after policy tightening has gotten underway and the economy is clearly in a sustainable recovery. Bernanke emphasized that the U.S. economy still needs the support of easy money policies. “At some point” in the future the Fed will “need to tighten financial conditions” by raising short-term interest rates and reversing programs that pumped liquidity into the markets. The Fed’s purchase of $1.25 trillion of mortgage-backed securities has pushed down mortgage rates and stoked home sales. Some fear this massive liquidity will spark inflation. Bernanke said the most drastic option-selling securities-isn’t imminent, and interest rates will stay low for “an extended period”.

Conrad DeQuadros of RDQ Economics doesn’t expect the Fed to raise rates until next year. Bernanke states that the Fed has other tools to drain reserves from credit markets to stave off inflation. It could boost the interest rate it pays a bank to keep excess cash at the Fed, and offer a “term deposit” that would pay an even higher rate for a bank to park cash for a longer period. Both would discourage lending. Bernanke stated the Fed plans soon to raise the discount rate it charges banks for emergency loans, a rate it lowered amid the financial crisis. Economists say that does not suggest higher interest rates for consumers. “It’s consistent with the Fed saying…the crisis is past us,” says James O’Sullivan, chief economist of MF Global.