The FED minutes from March 19th came out at 2pm today and it looks like the FED will keep rates down for a while. The minutes revealed no further talk of tapering. The stock market and mortgage bond market immediately rallied on the news. The minutes also revealed that the members of the FED unanimously agreed that a 6.5% unemployment target for raising interest rates was “outdated” and should be removed. The minutes read, “the Committee decided that it was appropriate to add language indicating that the Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”
What is this telling us?
Well, a couple of things. One, the unemployment numbers are just way off. The real number, when adding in the unemployed who have stopped looking for work, is more like 15%. So the FED realizes that even if the 6.5% target rate is hit, the economy is still weak and raising the rates would be a bad move. It’s also telling us the FED needs the housing market to pick up. For the economy to get going the housing market has to heat up. For whatever reason, high unemployment, low inventory, tight mortgage lending, bad weather, etc, the housing market has struggled over the last few months. The FED has to be concerned.
I have mixed feelings about the minutes. On one hand, I’m excited about the rates remaining low. On the other hand, I would love to see the housing market and economy be robust so that there was a reason to raise rates. Maybe the weather heating up will help, but in my opinion, lending standards have to be relaxed for first time homebuyers. Fannie and Freddie need to come out with a no down payment loan for first time homebuyers with good credit. It’s imperative that the first time homebuyer market picks up so that move up buyers can sell their homes and the housing market can get moving. It would be nice if the FED put that in their minutes!