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Daily Archives: November 20, 2013 @ 9:43 am (Wednesday)
Bernanke and Yellen pushing back on higher mortgage rates
Seems to me the Fed is making an all out effort to push back on the higher longer term rates, particularly mortgage rates. However, at least so far those rates remain elevated and at least so far mortgage purchase applications remain down year over year.
Again, seems to me it comes down to the notion that if forward guidance works to firm the economy, rates will move higher/sooner than if it doesn’t work to firm the economy.
This means forward guidance works to bring long rates down only if markets don’t believe it helps the economy.
So what’s a Fed to do to bring long rates down?
Seems to me the only tool left is unconditional guidance or purchasing securities on a price basis, rather than a quantity basis. Which does of course work, to the basis point.
That is, if the Fed announced it had a 2% bid for unlimited quantities of 10 year notes they would not trade higher than 2% while that bid was active. My recollection was that this was done during WWII.
And that we didn’t lose.
;)
fiscal update
No talk yet of waiving the sequesters?
McConnell: Stand Firm on Spending
November 19 (WSJ) — With budget negotiations stalled, Senate Minority Leader Mitch McConnell is pushing his GOP colleagues to resist efforts to ease across-the-board spending cuts due to take effect in mid-January. Mr. McConnell has argued it is better to let the cuts take effect than to agree to a budget deal that would allow overall spending to increase or revenues to rise. House Budget Committee Chairman Paul Ryan, also speaking at the Journal event, said he would continue negotiating with Democrats to reach an agreement but didn’t express optimism. Mr. Ryan, who chairs the conference, said if necessary Republicans would pass a bill to keep the government open and allow the sequester’s new spending cuts to take effect.