You may recall that I blogged THIS POST at the end of September in which I indicated that lower mortgage rates would be dependent on HOW MUCH the Fed would engage in quantitative easing. The WSJ reported today (see HERE) that Fed Chairman Ben Bernanke stated in a speech today that he believes “additional purchases have the ability to ease financial conditions”. It sounds like it is pretty much a forgone conclusion that the Fed will be buying up more Treasury debt later this year with the idea of driving down long-term interest rates. However, the markets have already priced Fed action into current rates. The question is no longer “If?” the question is “How much? How far? and How quickly?” will the Fed take action. A report today suggested that based on the current level of interest rates the markets are pricing in Fed action of between $315 billion- $670 billion.
If this report is right then we can assume that Fed action at the high end or above this range will cause mortgage rates to dip even more & a number at the lower end or below this range will likely cause rates to reverse higher.