FED Increases Rates and Mortgage Rates Drop
Talk
about a bomb going off in the mortgage rate markets, I could not say this any
better that what David Shirmeyer (from TBWS) stated today in his afternoon
report as there was an explosion in MBS prices this afternoon (lower mortgage
rates) as the 10yr note yield fell from 2.60% yesterday to 2.49% now.
The
FOMC did what was 100% built into the rates and prices prior to the statement.
The reaction though pushed interest rates lower and MBS prices much higher.
Yellen and the Fed continue on the path of “wait and see” and in the statement
said the Fed would take a “gradual” approach to increasing rates. On the
inflation front, the Fed isn’t as concerned as markets may have thought until
the statement was released. No immediate fears at the Fed that inflation is a problem
now, nor will it be through the rest of the year. “The Committee expects that,
with gradual adjustments in the stance of monetary policy, economic activity
will expand at a moderate pace, labor market conditions will strengthen
somewhat further, and inflation will stabilize around 2 percent over the medium
term.” ….. “The Committee expects that economic conditions will evolve in a
manner that will warrant gradual increases in the federal funds rate; the
federal funds rate is likely to remain, for some time, below levels that are
expected to prevail in the longer run.” …. “Inflation has increased in recent
quarters, moving close to the Committee's 2 percent longer-run objective;
excluding energy and food prices, inflation was little changed and continued to
run somewhat below 2 percent.” Yellen at her press conference said the Fed will
remain accommodative in the near term.
What
is the bottom line? Looks like we are in
line for at least two rate hikes and not the three than some had been pricing
into the market the past week. The Fed
may be too dovish on inflation. The bond and mortgage markets were too bearish
about the Fed based on how markets have reacted this afternoon.
I
had stated today that there is some sort of pull back that we are anticipating
both in the stock market as well as with equities, but not as much. I did not anticipate that the rates would
continue to fall but either hold steady or continue to get into another stagnant
pattern that it has done from time to time.
With the 10yr pushing the new highs, I anticipated the later, but never
realized how much was being put into the market on the predication of three
more hikes this year.
With
the Fed now behind us, we can now get back to the current data reports that
have been coming out and rely on that for direction. It starts tomorrow with Housing starts and
permits.
Comments
Post a Comment