The Fed will dust off an extreme arsenal used once or twice in a century to pull down the long end of the yield curve, and pull down mortgage rates.
What we do know is that current rates are NOWHERE NEAR the bottom because the Fed could easily still be waging war with deflation (and frozen credit) beyond 2009.
However, there is the Wild Card possibility that foreign nations could turn their backs on Treasuries earlier than expected. Yet, I think we are at least six months away from any significant signs of that, and possibly years away. History has shown that it can take decades for a dominant world reserve currency to be unseated.
Global financial chaos will continue to drive money into dollars at least well into 2009, but some say that will REVERSE when economic conditions around the world become so dire that nations will need to very large sums domestically. For example, China is already showing reduced appetite for US treasuries due to money being redirected to domestic stimulus.
2009 will be a quite an unusual year; we can be certain of that.
