News and commentary

The FOMC will leave rates unchanged this afternoon

By Richard Suttmeier
Updated: Tuesday, August 05 2008 08:08:AM

The 2% funds rate fueled commodity speculation, but the global economy is now slowing. Now commodities are sliding.
 
The Great Credit Crunch is center stage and maybe if the funds rate stays at 2% indefinitely some relief may eventually occur. The fact is that lower rates do not make bad loans solvent, and thus market rates and quality spreads have widened. The 30-Year fixed rate mortgage is 6.35% versus 5.25% in January. A one-year adjustable is a staggering 7.25% with that 2% funds rate.
 
Fannie Mae spread to the five-year Treasury is wide at 85.5 basis points despite the Housing Bill, which temporarily backs Fannie Mae and Freddie Mac debt.