Fiscal Cliff and More Fiscal Cliff

The whole world is watching and our elected officials are not looking very good.  The Fiscal Cliff is a real threat not only to the U.S. economy, but the world economy as well.  Markets around the world are moving up and down on every little whisper that comes out of Washington D.C. regarding the negotiations between Democrats and Republicans.  The bottom line is that real fear is beginning to take hold as it becomes more and more likely that a budget deal will not be reached by year’s end.

I understand the different ideologies and I am not going to make any type of political statement here.  What does amaze me is that with so much at stake there appears to be very little movement on both sides.  Our elected officials are playing “chicken” with each other, but the vehicle they are driving is the world financial markets.  It’s disturbing how our government has reached a point that it just does not function.

The Federal Open Market Committee met this week and released not only their opinions, but also their forecast for the economic future.  Here are the highlights:

• The Fed has indicated that they will keep rates low well into 2015 (it used to be 2014)
• Rates will not be raised until unemployment drops to 6.5% or inflation increases to more than 2%.
• The Fed will continue to purchase long term interest rates and mortgage backed securities to keep mortgage rates artificially low.  (What is interesting is that as soon as the Fed announced this news, mortgage rates rose and have risen more than expected just this week)

By the way, if you weren’t sure what it means that the Fed is going to continue to buy MBS’s and long term debt, it simply means our country is going further and further into debt.  (Just thought you should know)

Inflation is down and retail sales are up.  The producer price index showed that inflation is very much in check on the wholesale level with a reading of.1% which is actually indicating that wholesale prices are declining.  Retail sales jumped back this past month with an increase of .3% after last month’s decline of the same amount. Despite uncertainty about the fiscal cliff, it appears that retailers at this point are very optimistic about a very “green” Christmas as consumers appear to be purchasing more gifts than last year.

Next week’s market moving reports:

• Wednesday December 19^th - MBA Applications and Housing Starts
• Thursday December 20^th –First Time Jobless Claims, GDP and Existing Home Sales
• Friday December 21^st – Consumer Sentiment

I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

 

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