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June 16, 1995
Mortgage rates have achieved relative stability in the high sevens since Wednesday.
Steady rates for three days in a row is not usually a news item. However, consider the last two weeks: at "zero and zero" prices, mortgage rates moved from 8.25% to 7.50% to 8.125% to roughly 7.785% -- the greatest volatility in the mortgage market since 1987.
The credit markets have priced in a .50% reduction in the Fed funds rate, an expectation which the Fed may or may not fulfill. Long term investors could care less. For long rates to set new lows, we need solid evidence of recession, and the next chance is the jobs report due on July 7.
On Tuesday, Mr. Clinton announced the most important decision of his Presidency in his shortest speech in office. There is linkage there, somewhere.
Against the wishes of his advisors and Congressional Democrats, he has embraced a budget balanced by cutting spending. Two years ago, he promised two dollars in spending cuts for each dollar in tax increases, and delivered one for one. Now we get the other buck.
The financial markets could hardly believe that the Republicans avoided distractions and passed versions of a balanced budget last month. Gratified as traders have been, they have assumed the balancing act would bog down in a bad fight with the President.
Traders haven't begun to digest the thought that a balanced budget is a done deal. But it is. The guarantors are the American people, who have made it clear that they want it done without further partisan quibbling.
The markets don't care about the shape of the final deal. The House has deeper cuts in both spending and taxes; the President is shallower in both, and takes longer; and the Senate is in the middle. No new taxes in any; all work.
While the markets are in pleasant disbelief, Congressional Democrats have not yet figured out that Mr. Clinton has just handed them a nice, cool pitcher of iced hemlock. David Obey (D, Wisc.) sputtered: "I think most of us learned some time ago that if you don't like the President's position on a particular issue, you simply need to wait a few weeks." With friends like thisŠ.
Mr. Clinton seems to have discovered that the Democratic rout last fall was not so much a personal rejection as a wave of contempt for the Democratic Congressional machine. The survivors, lead by the feckless Mr. Gebhardt, still don't get it. They think they are going to take Congress back from the Republicans with the same, tired stuff: promise money they don't have, and let the deficit roll on and on. Suicide.
Mr. Clinton would like to get re-elected. Good government, fearless compromise, and abandonment of the irresponsible left of his party might just do it.
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