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National

June 13, 2012
Important Fed Meeting Ahead

With all the news about the economy and the potential concerns over future inflation, a big news item to watch is the Fed Meeting taking place this June!


What is it?
The Federal Open Market Committee (FOMC) consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings.

When will it take place?
The next meeting is scheduled to take place June 19-20, 2012.

Why does it matter?
The Fed's Statement after its meeting in April was not a glowing endorsement of the economy, but they did admit that things are improving in most areas except housing, which remains "depressed." While improvement in our economy is good, if this trend continues home loan rates could edge higher. Why? Because Stocks often benefit in strong economic times at the expense of Bonds (including Mortgage Bonds, which home loan rates are based on).

 

What to listen for?
There are two important topics that some experts have been paying close attention to–one is the potential rise of inflation and the second is the possibility that the Fed will initiate another round of Bond buying (called Quantitative Easing or QE3). In terms of inflation, the Fed acknowledged that inflation has increased a bit. Remember: higher inflation is never good news for Bonds as inflation hurts the return of a fixed investment. If hints of inflation continue to pick up in the weeks or months ahead, this could hurt Bonds and home loan rates. In terms of QE3, the Fed didn't mention another round of Bond buying in their policy statement after April's meeting, though Fed Chairman Ben Bernanke did allude to it in his press conference following the meeting. The markets will be keeping a close eye on the Fed for any hints about either of those topics at the next meeting.

 

Source: Fred Kreger's Blog

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