Mortgage Rates Dropped Today

Mortgage rates dropped today - largely in response to the release of the Minutes from the most recent Fed meeting.  The Minutes did not convey any policy decisions. Most [officials] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point.  The Fed has been very consistent about one thing over the last year - that the outlook is improving. But the data is slow to meet the optimistic view and even the Fed itself has consistently lowered its outlook for GDP growth almost each quarter over the past year. Inflation is nowhere on the horizon, defined as years away.

There is no doubt that the Fed wants to get the FF rate off zero, it has to so it has some ammo to lower it again if global economic outlook turns more bearish. The Fed does have a few other moves it can make, like going negative on rates for banks that are stashing billions at the Fed. Doing so is thought that would lead banks to increase lending rather than paying to park cash. But if that happens, negative rates would only signal worsening economic outlooks. Dodd/Frank has a choke hold on banks about lending and risk aversion. 

At the end of the day markets back to where they were in terms of betting on when, if at all, the Fed will move. September is not off the table, but December is growing momentum, and my prediction back in March is beginning to look more like that may become the right prediction.

Back to current data tomorrow - three key reports. July existing home sales, the Philadelphia Fed business index for August, and weekly job claims.  With the 10yr hitting 2.10% today, it looks like if tomorrow fuels improvement, 2.00% might be the next target and MBSs probably will increase another 60BPS.  Still volatile as investors and traders now more confused. Increased volatility over the next few days.

In summary, as always, when the Fed speaks - markets listen. Today's Fed Minutes indicated considerable doubt on economic conditions, and bonds rallied in response. Global economic outlook seems to be waning as well, and that bodes well for rates. I am advising borrowers with some risk tolerance to consider floating, particularly since I monitor MBS and at least can anticipate intraday moves. Looks like a great day to be a borrower!