FED Chairman Remarks Affecting VA Rates

There is good news for the VA mortgage market as of February 24, 2010.  The Chairman of Federal Reserve, Ben Bernanke, announced to Congress that “record-low interest rates are still needed to ensure that the economic recovery will last and to help ease the sting of high unemployment.” He seemed certain that recovery would continue, but it would be a slow process. He insisted rates need to stay low for the time being but didn’t indicate how long that would be. It was then reported home sales hit a low in January, making a new record, which goes to show it will be hard to improve our fragile economy even with the government’s assistance. It fell 11.2% in January, which is the third consecutive month it has dropped, even though Economist was predicting an increase.

Not only that, but unemployment is at 9.7%, foreclosure of homes are still at record highs, and it is extremely hard for businesses and individuals to get loans. It also was reported that as an effort to increase the economy’s situation, that a bill was passed to help produce more jobs. Not only that, but legislation is planning to help businesses by giving tax breaks to those who choose to help our economy by hiring more employees. Ben Bernanke promised that the Fed would keep the interest rates as low as possible (near zero) for an “extended period.”  Some think that this “extended period” will last a few months.

There will come a time when this will have to reverse once the economy is more stable. The timing is tricky, as waiting too long can cause problems such as inflation, whereas raising rates too soon can disrupt the improvement that will be made.  Bernanke also urged the Congress to act on restoring the nation’s financial structure to avoid events that, in Dec 2007, put us in a recession. Due to Chairman Ben Bernanke’s speech on February 24, 2010, the Tuesday drop of 101 points was raised on the Dow Jones on Wednesday (the day he gave his speech) by 100 points. This has been great news to the mortgage market! These lowered rates will continue to improve our economy. Our economy is recovering, but since it is still very weak and fragile, the lowered rates need to stay low. Veterans please keep in mind that interest rates on VA home loans are normally .25%-.50% lower on VA loan than loans made to civilians.

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