The stock market has waged a nice comeback since the S&P 500 hit lows near 1120 a few weeks back. We recently broke through 1200 again and it looked like the markets were well on their way to recovery. Not so fast! Why did this happen? Chairman Benracke's much anticipated speech at the Jackson Hole Wyoming summit indicated that the FED was going to use every means necessary to bolster the economy. The Fed is going to ride in like a "White Knight" and save us all from an impending economic mess!

Not so fast! Does anyone who follows this stuff remember the scrutiny the FED was placed under when QEII was rolled out? Chairman Bernacke was called to Capital Hill, he was vilified in the press. Everyone thought that inflation was going to run rampant. Ultimately the dreaded QEII did not cause the problems anticipated. The end result was a ballooning stock market through outside stimulus that could not hold the levels or cause companies to create any jobs. Inflation was created in core commodity sectors like Gas, Oil, and Gold. This made people feel good about their stock portfolios but not so good about paying $4.00 at the pump. The FED does not want to create inflation in the core consumer commodity sectors.

QEIII is unlikely in the format that many are expecting. What can they do? The FED already owns $1.3 Trillion in Mortgage Bonds. They own similar amount in Treasury Notes. This is all in effort to keep rates low for the stated "extended period" timeframe.
They likely accomplished more toward lowering rates by saying that they would keep rates low until Mid 2013. So many people are expecting Chairman Bernacke to ride in like a White Knight and save the economy from the inevitable.

Considering low rates, let's look at Japan who maintained a Zero Interest Rate Policy for 20 years during their recent recession. The world's second biggest economy has not had growth for 20 years and to stimulate growth the maintained their ZIP policy (If they are not still at zero, they are only slightly above today). The US has their own ZIP policy because the FED offers an overnight lending rate of 0-.25% until 2013. The result of the current monetary policy has only recently brought about some flattening of the curve with longer term rates. This should have happened some time ago if you look at the Japanese model.

Zero jobs created in August, banks being sued by the government, all of the talk is that the government regulatory policies are stifling growth. Thank the good lord and our current administration for putting excessive regulation in the face of a staggering economy. Now, we have the battle of the GOP vs. the administration and I guarantee you that the FED wants no part of being involved in this with their policies. The FED is not Political! Low rates are here for awhile but see my previous post on the "Pigs and the Hogs." It is going to get really bad economically very soon. Fortunately, if you can qualify for a refinance and meet the myriad of variables that make the refinance hole smaller and smaller you will save a lot of money. Fortunately if you are in the market for a house, you will get a phenomenal rate.

See my regular post on "locking" and "floating" on my web site, www.rglovermortgage.com and check out my low IL rates on my page her on Lender411.com.