The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting.

This week will be interesting for the bond market and mortgage rates. There are five remaining economic reports scheduled for release, but only one of them is considered to be of high importance to the markets. With data being posted all but one day of the week, we may see some noticeable fluctuations from day to day in mortgage pricing.  Generally speaking, despite the lack of a data-packed calendar, I would still maintain constant contact with your mortgage professional.

Interest rates remained volatile last week as worries about inflation continued to influence the mortgage market.   Comments from the Federal Reserve indicated that the current rate of inflation is above desired levels.  When the Fed is concerned about inflation, they tend to raise interest rates.  We recommend locking now before they go up.

Inflation data continues to hammer headlines and our wallets. News this week demonstrated what we have all been feeling; prices are higher at the pump, the grocery store and anywhere else you use your debit card. Interest rates trade off of bond prices and bonds HATE inflation. Coupled with this is concern about a declining economy which could hold rates back a bit, but the overall trend is higher for those seeking a mortgage in coming months.

Volatility being what it is these days, mortgage rates bounce around a lot. Upward pressure for rates one day gives way to downward pressure the next, only to succumb to upward pressure again.

The see saw between concerns about growth and fears about inflation tilted toward the inflation side again this week, after Fed Chairman Ben Bernanke addressed Congress in the semi-annual report on monetary policy. While detailing the challenges facing the economy, Bernanke noted that inflation was above desired levels and that upside risks for higher prices have “intensified” lately. A Fed seeing higher inflation usually can be expected to react with an upward move to the Fed Funds and Discount Rates at some point in the not-too-distant future. In fact, the Federal Reserve Open Market Committee explicitly noted at its last meeting that “with increased upside risks to inflation and inflation expectations, members believed that the next change in the stance of policy could well be an increase in the funds rate.”

The Federal Reserve Board on Monday approved a final rule for home mortgage loans to better protect consumers and facilitate responsible lending. The rule prohibits unfair, abusive or deceptive home mortgage lending practices and restricts certain other mortgage practices. The final rule also establishes advertising standards and requires certain mortgage disclosures to be given to consumers earlier in the transaction.

The final rule, which amends Regulation Z (Truth in Lending) and was adopted under the Home Ownership and Equity Protection Act (HOEPA) , largely follows a proposal released by the Board in December 2007, with enhancements that address ensuing public comments, consumer testing, and further analysis.

“The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership,” said Federal Reserve Chairman Ben Bernanke . “Importantly, the new rules will apply to all mortgage lenders, not just those supervised and examined by the Federal Reserve. Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers,” the Chairman said.

The final rule adds four key protections for a newly defined category of “higher-priced mortgage loans” secured by a consumer’s principal dwelling. For loans in this category, these protections will:

Fed Funds Implied Probability

Ben Bernanke says US Monetary Policy is ‘well positioned’; Wachovia fell for second day after ousting CEO Kennedy Thompson; Analysis by Mark Howard, Barclays Capital Head of Credit Analysis.

President Bollinger, Dean Hubbard, Co-Chairman Kravis, and distinguished guests, I am very pleased to be here and especially honored to receive the Columbia Business School’s Distinguished Leadership in Government Award. This evening I would like to offer a few thoughts on mortgage markets and the recent increase in the pace of delinquencies and foreclosures. My particular focus will be on geographic variation in mortgage performance and how that variation can help us better understand and prevent foreclosures. I will also discuss some initiatives taken by the Federal Reserve to address the foreclosure crisis as well as other policies that might be used to strengthen mortgage and housing markets.

Geographic Variation in Loan Mortgage Performance

As my listeners know, conditions in mortgage markets remain quite difficult, and mortgage delinquencies have climbed steeply. The sharpest increases have been among subprime mortgages, particularly those with adjustable interest rates: About one quarter of subprime adjustable-rate mortgages are currently 90 days or more delinquent or in foreclosure. Delinquency rates also have increased in the prime and near-prime segments of the mortgage market, although not nearly so much as in the subprime sector. As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million U.S. homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher in 2008. Not all foreclosure starts result in the borrower’s loss of the home; sometimes the borrower is able to make up the missed payments or other arrangements are made with the lender. Given the number of borrowers in distress and the weakness of the general housing market, the share of foreclosure initiations that ultimately result in the loss of the home seems likely to be higher in the current episode than customarily has been the case.

For release at 2:00 p.m. EDT

The Federal Reserve Board and the Federal Open Market Committee - FOMC on Tuesday released the attached minutes of the Committee meeting held on March 18, 2008, and of the conference call held on March 10, 2008.

The minutes for each regularly scheduled meeting of the Committee ordinarily are made available three weeks after the day of the policy decision and subsequently are published in the Board’s Annual Report. The description of economic and financial conditions contained in these minutes is based solely on the information that was available to the Committee at the time of the meeting.

The FOMC minutes can be viewed on the Board’s website at
http://www.federalreserve.gov/monetarypolicy/fomc.htm#calendars.

Bear Stearns CEO Alan Schwartz was in the hot seat on Capitol Hill as lawmakers review rescue plan. In the days leading up to the fire sale of investment bank firm Bear Stearns, the company was the topic of rumors, speculation and fear that led the venerable Wall Street firm to the brink of ruin.

Bear Stearns CEO Alan Schwartz, testified about those uncertain days before the Senate Banking Committee.

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened.  Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen.  The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.  Still, uncertainty about the inflation outlook has increased.  It will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity.  However, downside risks to growth remain.  The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh.  Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent.  In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.

2008 Monetary Policy Releases

Ben Bernanke gave a speech today where he is urging lenders to write down the principle of the loans to distressed homeowner is where the price has fallen.

Is the Federal Reserve chairman breaking new ground on fed communication?

Federal Reserve chairman Ben Bernanke heads to capitol hill today. He may encourage lawmakers to stimulate the economy.

Bernanke will appear before the house budget committee today. Legislators are set to question the fed chairman on steps to avoid the first recession since 2001. Bernanke may also try to avoid backing away particularly from tax or spending policies. analysts say doing so could earn him criticism from legislators who oppose them, in turn putting the fed’s reputation of independence at risk.

Bernanke may side step moves taken by former fed chairman Alan Greenspan, who said he misjudged the environment when he endorsed tax cuts in 2001.