Many
have wondered why interest rates have risen so sharply this year without the
economy showing significant enough strength to heat up inflationary pressures.
Yes, the threat of the Federal Reserve decreasing stimulus by lowering their
purchases of Treasuries and Mortgage Backed Securities hovers over the markets.
Yet, the Fed would not be considering lessening stimulus if they were not more
confident about the economy. We must remember that these extraordinary measures
were put in place to keep us out of a second recession as the world-wide
economy was slowing while we were struggling to come back from our deep
recession. How many times did we hear that Europe's recession and fiscal crisis
could drag us back into recession?
In
the past we asked the question -- will Europe pull us back into recession or
will we lead Europe out of recession? We surmised that if the real estate
markets in the U.S. continued their recovery, then it was more likely that we
would help lift Europe up. While I can't say there was a direct relationship,
the news released recently that the Eurozone had a positive quarter of growth
bodes well for this scenario as well. A 0.3% growth rate for the 17-nation area
is nothing to write home about, but it is progress. Keep in mind that the central
banks in Europe have been applying their own brand of low interest rate
stimulus. The fact is that Europe is not out of the woods and we are a long way
from a normal recovery. However, the easing of Europe's recession weakens
another threat to our economy. The Fed's reaction to lessen stimulus is a
normal reaction to the lessening of threats. We are still a long way from
ending all stimulus activity from the Fed but we seem to be on the doorstep of
the first move.
Mike
Ervin
Senior
Mortgage Banker
NMLS # 282715
Cell:
650-766-8500
mike@mikeervin.com
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