Mortgage Rates Respond to No FF Increase

Mortgage rates came roaring back today after the Fed held steady at record-low policy rates.  While the Fed Funds Rate does not directly dictate mortgage rates, the two tend to correlate over time.  At its most basic level, the Fed rate dictates the cost of short term money, which has ripple effects that carry through to longer term financing costs, like those associated with things like 10yr Treasury notes and mortgage rates. 

For the first time the FOMC put a lot of emphasis on the global economic slowing. The Fed also released its quarterly projections Janet Yellen in her press conference was asked about a possible increase in October and she confirmed October is not off the table for an increase. It is difficult to expect a move in October based on the reasons the Fed held off now. That meeting on the 27th and 28th is too soon to expect a major change in the comments today, and there is no press conference scheduled for Yellen. If the Fed wants to keep this confusion going it should announce soon that Yellen will hold a press conference in October. Janet Yellen and the policy statement have relied heavily on the word ‘transitory’ to define all of the head winds, including inflation, wages, global slowing. If she were Fed chairwoman four years ago she would have used ‘transitory’ to define the slow US expansion and every other headwind facing the Fed. No one ever asks for her definition of ‘transitory’.

Time now to take a breath. Technically the work at best can be defined as neutral. The 10yr has not added back below its strong pivot point at 2.20% and is presently not below its 20, 40 and 100 day averages all of which are at 2.21%. The past 48 hours have been exceptionally volatile, even for a FOMC meeting. The momentum oscillators I still see are still not reflecting a bullish bias. Since the close on Monday the 10yr note yield is up just 5BPS in yield, MBS prices since Monday’s close +16 bps in price. The dollar weakened against the yen and euro currency, the stock indexes lost all of the gains going into the policy statement. How markets react tomorrow is key. 

Where will money go now, out of stocks and more selling, into the bond market?
It is a Rain Man market. No one can get beyond the Fed and it is increasingly more annoying, but like Rain Man, markets only have the ability to focus on one thing at a time. Remember Greece, the Ukraine/Russia; those problems dominated and they are still perking but who cares.

In summary, today's decision was most welcomed.  For all who locked in to protect their rate prior to the today did the right thing.  For all who floated in anticipation, albeit crazy, good for you.  Moving forward we now have a better understanding of the FED's stance allowing us to be a bit more aggressive and bullish.  Loans cleared to close inside of 7 days should be locking, otherwise, you can watch this play out before finalizing your rate.

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