Fed Signals no Immediate Steps to Help Economy

Ben Bernanke, The Fed chief, in testimony before a congressional panel yesterday sent no signals that the Fed will take any immediate steps to aid the economy. Recently released negative economic data had many believing that Ben would announce QE3 to help the slowing economy.

Ben did say the Fed is prepared to take steps to boost the economy if it weakens. I guess at this point Ben and company don't feel things are bad enough to warrant any moves.

Let's face it, even if things get worse what arsenal does the Fed have left to help us? Not much, just more of the usual, buying long term U.S. Treasuries and mortgage-backed securities to force long term rates even lower.

The idea is to force investors and financial institutions like banks out of low yielding bonds into capital investment and lending. Unfortunately, the economy is still de-leveraging from the excesses of debt the past ten, twenty or thirty years and will take several more years to get debt back to a more manageable level.

This doesn't bode well for growth since consumers are more concerned with paying off debt and saving money, a big reversal from the past when credit was easy and everyone was encouraged to take on debt.

The Fed's policies of forcing interest rates lower have decimated deposit rates. The highest CD rates on 1 year certificates of deposit are just north of 1.00 percent. CIT Bank CD rates are one of the highest at 1.09% APY 1.10%. The best savings rates are also just north of 1.00 percent.

The Fed's policies of driving rates lower has forced mortgage rates to record lows which has helped millions of homeowners refinance their mortgage. Today's mortgage rates on fixed conforming 30 year and 15 year mortgages hit an all-time record low this week.

With refinance rates so low, anyone who has a mortgage and any financial sense has refinanced their loan. Millions of people have also refinanced more than once over the past several years.

Unfortunately there are an estimated 11.1 million homeowners (Corelogic) out there who can't refinance since they are either underwater on the home, meaning they owe more than their home is worth, or don't have the required minimum equity in the home to refinance.

I know several friends and family members who have a current mortgage rate above 5.00 percent, one family member has a 30 year rate at 6.75 percent. We calculated his family would save over $550 a month in monthly mortgage payments if they were able to refinance to a 30 year rate of 3.75 percent.

If the government is serious about creating jobs and jump-starting the economy the best way to do so is enabling these 11.1 million homeowners refinance their loan! If you're current on your mortgage but are paying an higher mortgage are why shouldn't you be able to refinance to a record low rate?

Can you imagine the jolt of having millions of homeowners lower their monthly mortgage payments and have money to spend? I haven't seen any estimates but I bet GDP growth would get a boost that would last several years.