The market has been holding its breath all day, waiting for the FOMC (Federal Open Market Committee) decision on (among other things) what rates will look like in the near future.
On the political side of things, there has been a lot of pressure on the Fed to start using the income from their investment in Mortgage Backed Securities, and other investments, to pay down our national debt. The big debate has been “is it more important to reduce the national debt or to stimulate growth through various spending programs?” You know the old adage….it’s takes money to make money. Well, there’s a another one that says “a penny saved is a penny earned”. So, today , in the “battle of the old sayings” the former seems to be winning.
The FOMC statement said, basically, that the Fed Funds rate would go unchanged (at 0%-0.25%). In addition, the Fed has come out in support of reinvesting their investment income into more Treasuries. So far, they have not committed to purchasing more MBS. The reason for the increased purchase of treasuries is simple: There is a significant lack of confidence in our economy to sustain its own growth. Consumers are hurting and not spending. This is why I discussed the significance of the personal savings rate in a previous post. Also, the unemployment figures are not getting better, and won’t until employers gain enough confidence to hire. As expected, the FOMC statement included the infamous phrase that they “expect interest rates to stay low for an extended period of time”
After the FOMC Decision, we saw a quick spike in the market, but now that is backing off as the market digests the news and the implications. Looking at the vote, it was 9 to 1 vote with Hoenig dissenting.
If you are trying to game this to your advantage, there are some good money-making opportunities right now, but the market is quite volatile right now. Our suggestion? Give it some time to see where things are when the dust settles.