Quote:
Originally posted by jyl
People are moving away from ARMs. The interest rate delta between ARM and fixed is not large, and maybe lenders or borrowers are wising up.
I still cannot believe Greenspan advised Americans to use ARMs in March 2004. Barely four months before he started raising the Fed Funds rate. What in the world was he thinking?
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Without doing any research I'd guess that the purpose was to maintain strong economic activity in the US and maintain the value of the dollar relative to foreign currencies?
Today.. as the current housing market will probably lead to lower consumer spending this difference, hopefully, will be made up by increased exports and lower imports. For that to happen the dollar must decline on the international markets. It's possible to maintain the value of the dollar at home with price stability and become more competitive in the global markets. It's the Fed's current job to engineer a monetary policy for all this to happen.
The lag between a policy shift to economic impact is always debatable. Allowing markets to gradually shift and adjust is more approprate than radical market change. A 1% Fed Funds increase within 3mo is radical. This happening would whack consumer spending.
It's all about maintaining stable US economic growth. I watch GNP and job creation as this Fed dance gets confusing within market psychology both locally and internationally.
