Fed Could Opt For A More Modest Rate Cut

The Fed may opt for a more modest rate cut to avoid looking like it is bailing out wayward investors.  The consensus is for a more aggressive 50 bps move if only as an effort to get ahead of the market sentiment in their drive to ease. 

The durable goods report suggests that the economy is probably in better shape than a lot of people thought although it is only one month.  The report came in at 5.2% vs expectation of 1.2%.  Consumer Confidence for January was reported at 87.5, which was stronger than expectations of 87.0 This morning's stronger than expected report has to raised some eyebrows at the Fed, which starts their two-day meeting today.  The Policy statement is set for release tomorrow afternoon at 2:15 ET.  Remember it takes 6 to 9 months for the effects of a Fed Move to be realized.  And we are barely 4 months past the initial Fed cut.  If inflation flames arise, bond prices will suffer later, as the fixed rate of return they generate must yield a number to compensate for higher inflation. 

As always, loan application never peak at the lowest point for rates ... they do so when rates start moving up and people get off the fence before the train leaves the station.  If you are a Jumbo customer it is wise to have your loan in queue, this way you can pounce on the lower rates once the conforming limit is raised.