Despite concerns about rising rates and relying on my
previous readings about Monetary Policy, I can comfortably state that the Fed
had used five variations of “extended period” language to restrain expectations
of policy rate hikes, eventually suggesting that it would maintain its low
policy rate until at least mid-2015.
Low rates are appropriate for as long as the unemployment
rate is above 6.5 percent,
medium-term inflation forecasts stayed below2.5 percent, and long-run inflation
expectations remained anchored.
I think that the recent signaling by the Fed Chairman is a
market test and has not been understood properly and I think that mortgage
rates are being pushed higher only because of market volatility .
There is little room to believe that the US mortgage
rates wil go higher than
5% for a significant period of time or that the Fed can slow down its
QE (quantitave easing) in light of the Massive Japan QE over the next two
years even if the Japanese QE is mainly aimed at expanding bank reserves
rather than easing credit market conditions.
Rates
will head to the low to mid 4’s during volatile periods with significant
periods in the mid to high 3’s still until 2015.
An active management of pricing margins is even more crucial
in the upcoming couple of years .
Nabil Farhat