The date itself seems harmless enough, but it’s the day that the financial and mortgage markets having been waiting for all summer. Every year, the Federal Reserve has a retreat in Jackson Hole, WY to consider our economy and plan for the future. The discussions during this meeting–even the meeting notes–have tremendous impact on the markets. When the “minutes” from this meeting are released, there will be thousands of folks pouring over its contents to learn more about where the Fed wants to take us next.
For those of us on the mortgage side, there is speculation around what the Fed will do with their $85 Billion monthly bond buying program, otherwise known as quantitative easing. With some improvements in the economy, there is a belief that we will see the Fed decrease their bond buying, which in essence has been one of the key drivers of the historically low interest rates meant to help spur the economy. Wrap this all together with the selection of a new chair of the Federal Reserve and it makes for an interesting Fall.
First, let’s talk about the meeting minutes. What I believe we will see in these notes is a recommendation to further taper the Fed’s bond buying program, but it will lack support from all the voting Fed members. As I wrote earlier this summer, the Fed has already started tapering but won’t we don’t know is exactly how much. That’s the insight we are all waiting for–the specific details which will tell of the scope of the pull-back. The scale of this change matters, because when they just inferred this was going to happen rates immediately went up a point. If there is an announcement of a significant reduction rates will shoot up immediately.
Next is Bernanke’s exit, with his term coming to a close on January 31. A new Fed Chair always brings change, which can be a blessing or a curse in the best of times. Given our current economic state, it makes one wonder how it will all play out as the new chair takes charge. I guess I’m wondering who is currently running the ship. Bernanke has been somewhat removed since his “less than ideal” tapering comments, earlier this summer. He also did not attend the Jackson Hole session–something a chair hasn’t missed since 1988. Speculation is that Janet Yellen (Fed Vice-Chair), one of the front-runners to be the new Fed Chair, is already taking the lead. Meanwhile, Obama’s former economic advisor, Larry Summers, also looks to have a fighting chance at the post.
Only time will tell us how these events will unfold.