FOMC announced today it will leave the benchmark interest rate as it is …between 0 - 0.25 percent. However they mention a disturbing willingness to “support” the Treasury market through direct purchases of long-term securities.

Boy, I bet Pimco’s Bill Gross, loved hearing that!

FOMC: No Change on Benchmark Interest Rate

The FOMC after deciding not to change the fed funds rate did mention in the press release that ” inflation pressures will remain subdued in coming quarters.”

In response to the Fed’s second mandate to spur economic growth after inflation is contained, the Fed intimated they are likely to continue buying GSE debt to support the mortgage market.

I have already refuted in other posts and podcasts how the Fed buying GSE debt is actually causing a dis-equilibrium in the mortgage market driving mortgage rates so low there is no profit in originating a mortgage for the wholesale channel of the industry. This has lead to mass exodus of wholesale lender from the market leaving mortgage brokers with little choice to fund their originations through wholesale channels. Citimortgage is the latest wholesale mortgage lender who recently left. At one time Citimortgage was the in the top three wholesale lenders.

In turn, many retail mortgage brokers are going out of business as well…over 100,000 lost jobs in the last few months. When retail options like mortgage brokers die off, this leaves little competition for the mega-bank retail channel. Consumers are hurt by having less choice.

From the retail side of the mortgage industry and all consumers I give a sarcastic, “Thanks Bernanke for all the “help!”.

The Fed announced they would also continue this “helpful” trend by saying they are “prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets.”

God help us if Bernanke decides the Treasury market needs his “help”. The unintended consequences of this act is unfathomable, but I’m sure a similar disaster is in the making.

Good Luck!

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