The big event of the week happens today when the FOMC announces their policy decision at 11:15AM PST, 2:15PM EST. The markets have priced in a 50-basis point cut, but many are calling for a 75-basis point cut. Once again, it raises the question about whether or not it will do anything to help mortgages, or rates in general. Longer term rates are influenced by supply and demand – the Fed could lower rates to 0%, but if no investor wants to own certain securities, the yields on those securities will be “sky high” in order to attract buyers. Mortgage rates, for example, remain high despite FOMC cuts, and some feel that unless the government gets more aggressive with purchasing mortgage loans, rates will remain around these levels although others feel that eventually mortgage rates will ease. And it has been said that since Ginnie’s, Fannies, and Freddies have a basic government guarantee, why wouldn’t savvy investors want to own them at such a high spread to Treasury securities?

Remember when the Fed was afraid to cut rates because of inflation worries? That’s long gone. A lower funds rate will help financial institutions, like banks, which would pay less for deposits and lend money out, since the yield curve would steepen. One recent case study of a 0% funds rate is Japan between 1999 and 2006. During that time, unfortunately, it led to a sharp decline in money market activity and trading – but that may not be the case this time around. If money market rates fell further and money market funds no longer offered a significantly positive net yield, their investors might decide to move out of Treasury-only money funds – into stocks? Or mortgages?

And, speaking of stocks, they certainly grabbed the headlines yesterday, and overnight stocks markets around the world rallied. This, in spite of the Consumer Confidence index dropping dramatically from 59.8 to 38.0. This morning we were greeted with the Durable Goods numbers, which rose unexpectedly in September by 0.8% due to demand for defense goods and transportation equipment. This follows the 5.5% drop in August, reminding us that Durable Goods numbers can be very volatile. We also saw that the MBA Mortgage Applications Index increased 16.8% last week, with purchases +8.5% and refi's +28.5%. After all of this exciting news, the 10-yr is at 3.82% and 30-yr mortgage prices are better by .250 to .375 versus yesterday.

(Thank you Doug M.)

Young Chuck moved to Montana and bought a horse from a farmer for $1,000.  The farmer agreed to deliver the horse the next day.
The next day he drove up and said, “Sorry son, but I have some bad news, the horse died.”

Chuck replied, “Well, then just give me my money back.”
The farmer said, “Can't do that. I went and spent it already.”

Chuck said, “Ok, then, just bring me the dead horse.”
The farmer asked, “What ya gonna do with him?”
Chuck said, “I'm going to raffle him off.”
The farmer said, “You can't raffle off a dead horse!”
Chuck said, “Sure I can. Watch me. I just won't tell anybody he's dead.”
A month later, the farmer met up with Chuck and asked, “What happened with that dead horse?”
Chuck said, “I raffled him off. I sold 500 tickets at five dollars a piece and made a net profit of $2,495.”
The farmer said, “Didn't anyone complain?”

Chuck said, “Just the guy who won. So I gave him his five dollars back.”
Chuck grew up and works for the California Lottery.