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July 21st, 2009

FOMC Member Confirms Rates Will Stay Low

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Our prediction for the future of mortgage rates as well as our interpretation of the minutes from the Federal Open Market Committee’s (FOMC) last meeting were confirmed yesterday in a speech delivered by an FOMC member.

Federal Reserve Bank of Atlanta President Dennis Lockhart, also a voting member of the FOMC, said “Certainly we have low interest rates today” and “I would expect that to continue for some time.”

As we’ve previously noted, the FOMC has no immediate plans to increase their rate-fighting strategies (purchasing additional Treasuries and/or mortgage-backed securities). While significant concern has arisen that those strategies will trigger inflation, Lockhart said inflation concerns are far off, and at the moment, inflation and deflation are equally as worrisome:

Lockhart’s view that the recession is ending is shared by many central bankers and private-sector economists. That said, caution rules and central bank officials have indicated recently they see little reason to change the current, very stimulative nature of monetary policy.

“I am very confident of the FOMC’s commitment to price stability,” he said, adding “one should not assume at this point that extraordinary measures to shrink the balance sheet are required to contain inflationary pressures.”

Lockhart has endorsed the growing sentiment that deflation risks are fading. He also cautioned observers the central bank will not let inflation become a problem, least of all out of actions the institution has taken to stimulate growth during the financial crisis.

“I believe inflation and deflation are roughly equal risks and require careful monitoring,” Lockhart said. The excess slack the economy’s generated will help keep price pressures down, he said.

Lockhart’s statements come one day prior to Fed Chief Ben Bernanke’s appearance in front of lawmakers, where he will discuss the Federal Reserve’s exit strategy from the above mentioned programs which were designed to keep rates low, but have also skyrocketed the Fed’s balance sheet and spawned concerns of inflation. Check back soon as we hope to dissect Mr. Bernanke’s comments regarding the Fed’s exit strategy.

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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