Decision Time Ahead for Markets as Trends Converge
Fed’s Lockhart Says Recession Risks Have Risen
(Reuters) – The risk of a new U.S. recession has risen over the last couple of months, but an outright contraction will most likely be avoided, Atlanta Federal Reserve Bank President Dennis Lockhart said on Monday. Lockhart said there is plenty the central bank could do if the economy does deteriorate further, including ramping up asset purchases or shifting their composition. Recent market volatility, driven in part by concerns of slowing economies both in the United States and Europe, threatens consumer confidence and could put a crimp on spending, Lockhart told a Rotary Club meeting. “The events of the last several weeks are a reminder that circumstances can quickly arise that may call for additional monetary stimulus,” Lockhart said. Last week, the Fed took the unprecedented step of promising to keep interest rates near zero for at least another two years. Lockhart said in his view, the pledge hinged on economic conditions, and could be altered as the economic winds shift. Even though the Fed had only made a verbal promise about rates themselves, its balance sheet policy “should align with explicit rates policy,” he said. Delving into the reasons for “wild” recent swings in global financial markets, Lockhart said the ups-and-downs were in part a reaction to the downgrade of the U.S. AAA credit rating. He said worries about Europe have also been at the forefront, with investors fearing France’s ratings could be next on the chopping bloc. “There have been escalating concerns about the condition of specific banks in Europe that have high exposure to Italy and other peripheral countries,” Lockhart said. Still, he was relatively sanguine about the U.S. financial system. “There is no lack of liquidity in the banking system. There has been, however, some stress in the money market mutual fund world, mostly before the debt ceiling was raised,” Lockhart said. “We have not seen a renewal of solvency concerns here in the United States.”
More Homeowners Refinancing Into Shorter Loans
(Reuters) – More U.S. homeowners prefer to pay off their mortgages sooner as interest rates have stayed near rock-bottom and weak labor conditions have caused them to reduce their debt loads, a survey showed on Monday.
The current trend in refinancing into shorter-loan terms is a stark contrast to the one during the height of the housing boom, when families were taking out bigger mortgages against the rising values of their homes.
Of those homeowners who refinanced a 30-year fixed-rate mortgage during the second quarter, 37 percent moved into a 15-year or 20-year fixed-rate loan. This is the highest since the third quarter of 2003, mortgage finance agency Freddie Mac said.
In the second quarter, interest on the 30-year mortgage averaged 4.65 percent, compared with a 3.84 percent average on 15-year mortgages, the company said.
“It’s no wonder we continue to see strong refinance activity into fixed-rate loans,” Freddie Mac Chief Economist Frank Nothaft said in a statement.
Refinancing has comprised the bulk of U.S. mortgage activity since the housing bust that led to the 2007-2009 global financial crisis.
During the second quarter, the refinance share of mortgage applications, versus the share of applications for loans to buy a home, averaged 70 percent, Freddie Mac said. (Reporting by Richard Leong; Editing by Dan Grebler)
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