Pop Quiz: What state had more than 82,000 licensed mortgage brokers just four years ago, but now only has 10,600 licensed loan originators? It is also the same state of which the highest elevation is 345 above sea level. Answer.

More Fed’s Rate Policy Last Week
Caroline Baum, a noted economic writer for Bloomberg, had some interesting points last week on the Fed meeting.

On the fiscal-policy side, the Obama administration and members of Congress can’t agree on whether the U.S. economy’s problem is too much debt or too much unemployment. At least they agree on the “too much” part. Central bankers at the Federal Reserve…determined that the problem is the rate structure: Specifically, long-term interest rates are too high. In order to bring them down, some verbal tinkering was in order. The Fed said economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

This is the first time since the introduction of the “extended period” language in March 2009 that the Fed has assigned a specific time frame to it. The truth is that the Fed doesn’t know how long it will need to keep the funds rate at its current setting of zero to 0.25 percent. In early 2010, the central bank was readying an exit strategy from a period of monetary accommodation. With each piece of old news, its growth forecasts have been revised down, and its unemployment forecasts up. This is why I call them ‘hindcasts.’ From the three options that Fed Chairman Ben S. Bernanke outlined previously should the economy need an additional transfusion — additional long-term securities purchases, a reduction in the interest rate paid on excess reserves, and verbal gymnastics — the Fed picked the third, which is also the silliest. And it’s right off the shelves of academia, where rational-expectations theory is an obsession.

An analyst wrote:

The Fed’s view of the economy at this point is a gloomy one. That, combined with the dual mandate they carry, requires the Fed to seek to foster maximum employment and price stability. That means unless the outlook changes, the FOMC will take further action to try and stimulate the economy. Of those most often discussed in the press, the Fed could start buying bonds again in an effort to drive up the price and push down the yield. They do this to stimulate housing and business loan refinancing activity in order to put more money into the pockets of borrowers that can then be spent on goods and services. The problem with this effort is that it balloons the balance sheet, which is already gigantic, so it is deemed less likely. Another twist on this is to sell short term bonds and buy longer term ones. This pushes up yields with shorter maturity dates and pulls them down on the longer maturities without further expanding the balance sheet. Another potential tool the Fed can use is to cut the excess balance account rate from 0.25%. This would have the effect of forcing banks to put short money to work further out the curve, as the strain on margin simply becomes too much. That in turn would help stimulate the economy if the theory holds. Of all the options listed, this one is probably in the top two, so being prepared is important.