This week the Senate will vote on the re-election of Fed Chairman Ben Bernanke, and will most likely be confirmed to a second term, as the Chairman will need 60 Senate votes to break a procedural delay, and 51 to be confirmed.
More importantly, the Chairman’s reelection is needed to help continue our current mortgage and housing recovery, with two major issues at hand, which will be addressed in this week’s meeting.
The first issue is the Fed's line that has appeared within all Policy Statements during 2009, saying that present economic conditions should "warrant exceptionally low levels of the Federal Funds Rate for an extended period." This has helped to fuel the carry trade, where institutions can buy securities including Mortgage Bonds by borrowing at exceptionally low rates, with little money down to make the purchase, and financing the rest. This allows for enormous gains, but should the Fed signal that they may be thinking about a change to their accommodative policy, this carry trade will begin to unwind and Mortgage Bonds will sell off causing home interest rates to increase.
The second issue deals with the upcoming expiration of the Mortgage Backed Security purchase program. The Fed has been telling us, and signaling to the markets, that this program will end as planned on March 31st. But there has been speculation that the Fed may add to their purchases and extend the deadline. With the expiration close by, the Fed's guidance on this topic will be very important to the direction of Mortgage Bond prices.
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