Mortgage Rates Waiting for Final Countdown

Mortgage rates are officially holding their breath ahead of Thursday's FOMC Announcement.  This is the final countdown as it is not only the mortgage rates that people think that might be affected, but the entire bond market. 

Expect markets between now and then to be relatively quiet compared to the recent volatility. What if the Fed actually gets stones and makes the move on the FF rate? How will markets react? We believe a counter trend rally will occur in the stock market, rallying the indexes; the bond and mortgage markets will likely see some selling but overall interest rates will remain low based on historical measurements. The reason I believe a rate hike will rally stocks - a move by the Fed in the face of so much concern will be taken by markets as increased evidence the US economy is growing and the Fed had to act. Secondly, the Fed, and Yellen particularly, have made it abundantly clear it will be a one-off move not to be flowed with a continual plan to increase rates. While the fear of inflation as a reason to increase rates now is a Fed pipedream, it is not a reason to increase rates now. All that said, markets generally do not expect the Fed to move. What if the Fed does not move, if the Fed holds the line it will have to state in the policy statement that the quality of the economic growth is on the poor side and the Fed wants more evidence. US equity markets may see substantial selling.

It is this uncertainty that is causing the paralysis in the market right now.  Financial markets will definitely become more active after Thursday's Fed decision.  Simply put, most investors have a plan A and a plan B at the very least - one for a Fed hike, the other for 'no hike.'  They do not want to get too far away from either plan until they know what the Fed actually does.

Two key data points tomorrow - August retail sales and August industrial production and factory usage. 

Regardless of what I outlined in the second paragraph the betting remains solid that the Fed will not move on Thursday.  In fact, I do believe I am finally seeing that more and more people have taken my stance that I have held since April that there will be no increase in 2015.  However, most every opinion, mine included, can be seen as guesses.

In summary, with the much anticipated FOMC meeting this week, floating is highly dangerous.  This means there is likely less to gain or lose between now and Thursday, but be sure to lock before then if you are not interested in a very high-stakes roll of the dice.   I could see rates rallying or selling off after the FOMC announcement later this week regardless of whether they hike rates or not.  Only those that can afford to be wrong should float.