Mortgage Rates in Limbo Heading into FOMC Meeting

Mortgage rates resumed their recent uptrend today, after taking a quick break to end the week last Friday.  The result is another push up to the highest levels in just over 3 weeks. Stocks continue to edge higher. The bond market also edging higher (rates) and the dollar keeps falling (although today the dollar indexes a little better).

The Fed, the ECB and the Bank of Japan’s best economic minds cannot get a grip on why inflation is not increasing. The consumer remains a question.  Consumer spending measured by the August retail sales declined last week, CPI still soft although there was a very minor gain in PPI compared to estimates last (0.1% more than forecast), lot of chatter about the improvement in inflation based on that miniscule improvement. Crude oil is running higher recently on hurricane issues and the naïve belief that OPEC and other oil producing countries will keep the faith on capping output. North Korea threatening to blow up the world, China, and Russia, at least on the surface, are not doing much to rein in NK. Mario Draghi cannot bring himself to wrap his arms around the growth in the EU, still waffling about tapering the QEs. The US housing sector lagging on not much inventory. Tax cuts on the way based on current expectations, the prime attempt to bring US companies back to the US. Media agog over the run-up in stocks fueling some increase in consumer sentiment, although the U. of Michigan consumer sentiment index released last Friday did dip lower than thought. Small businesses remain positive based on the NFIB optimism index.

A lot of issues facing the FOMC tomorrow and Wednesday, and what to do or think about them in a basket of economic mish-mash and geo-political turmoil. Trump’s UN speech tomorrow looms, his first speech to 190 countries facing his stance on America First that has shaken most that is the US moving toward isolationism. His threats directed to the little imp running North Korea, and the imp’s response to turn America into ashes. All will be in focus tomorrow. The Fed missing three governors and about to be four next month when Vice Chair Stanley Fischer will retire. Meanwhile stocks continue to climb even with more money managers sounding alarms. Can we believe the Fed, the ECB and the Bank of Japan have a handle on any of this? Whether we believe, it is very likely markets will come away from Wednesday’s policy statement with increased optimism. The Fed is not in business to forecast bad news.

Tomorrow two key data points with August housing starts and permits, along with August import and export prices.

I am not looking for much movement in the bond and mortgage markets tomorrow.  The stock indexes continue to hold the key for bonds that are only going to move lower on a turn-around in equity markets or safety moves due to geo-political events. With the Fed and Janet Yellen Wednesday it is reasonable to think a quiet day unless Trumps says things that shock, but we doubt he will.  

In summary, rates continued their upward march today, and it is now safe to say the trend is not our friend.  The good news is that rates' ascent has been (for the moment) been orderly and moderate.  I favor locking all loans within 30 days of closing, as I do not see a lot of potential for short term gains here.