By Fred Arnold
The Fiscal Cliff is a real threat not only to the U.S. economy, but the world economy as well. Markets around the world are moving up and down on every little whisper that comes out of Washington D.C. regarding the negotiations between Democrats and Republicans. The bottom line is that real fear is beginning to take hold as it becomes more and more likely that a budget deal will not be reached by year’s end.
I understand the difference ideologies and I am not going to make any type of political statement here. What does amaze me is that with so much at stake there appears to very little movement on both sides. Our elected officials are playing “chicken” with each other but the vehicle they are driving is the world financial markets. It is disturbing how are government has reached a point that it just does not function.
The Federal Open Market Committee met this week and released not only their opinions, but also their forecast for the economic future. Here are the highlights:
- The Fed has indicated that they will keep rates low well into 2015 (it used to be 2014)
- Rates will not be raised until unemployment drops to 6.5% or inflation increases to more than 2%.
- The Fed will continue to purchase long term interest rates and mortgage backed securities to keep mortgage rates artificially low. (What is interesting is that as soon as the Fed announced this news, mortgage rates rose and have risen more than expected just this week)
By the way, if you were not sure what it means that the Fed is going to continue to buy MBS’s and long term debt, it simply means our country is going further and further into debt. (Just though you should know)
First time jobless claims have been dropping steadily since Hurricane Sandy caused them to jump. Last week’s claims plunged from 372,000 down to 343,000. We have had a run in the not too distant past in which claims kept dropping and everyone is hopeful that the current declining pattern will continue.
Inflation is down and retail sales are up. The producer price index showed that inflation is very much in check on the wholesale level with a reading of 0.1% which is actually indicating that wholesale prices are declining. Retail sales jumped back this past month with an increase of 0.3% after last month’s decline of the same amount. Despite uncertainty about the fiscal cliff, it appears that retailers at this point are very optimistic about a very “green” Christmas, as consumers appear to be purchasing more gifts than last year.
This week’s market moving reports:
- Wednesday December 19th – MBA Applications and Housing Starts
- Thursday December 20th –First Time Jobless Claims, GDP and Existing Home Sales
- Friday December 21st – Consumer Sentiment
One final note, on this day in 1903, Orville Wright made the first attempt at powered flight. The engine stalled during take-off and the plane was damaged in the attempt. This incident has been identified as the world’s first official flight delay (and we all have seen history repeating itself, haven’t we?). Three days later after some minor repairs, the modern aviation age was born when the plane stayed aloft for 12 seconds and flew 102 feet.
As your mortgage professional, I am happy to assist you with any information you may need regarding mortgage or real estate information. I welcome the opportunity to serve you in any way I possibly can.
Certified Mortgage Consultant (CMC)
American Family Funding, a Division of American Pacific Mortgage – A Direct Lender
DRE License # 01173600/01215943
Direct: (661) 284-1150 x 109
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28368 Constellation Rd., Suite 398
Santa Clarita, CA 91355