Mortgage Rates Sideways - FOMC Announcement This Afternoon

Mortgage rates moving sideways thus far today.  Like clockwork yesterday, the 10yr hit 2.42% then fell back a little at the close. This morning opened 2.42% after another key test at 2.40%, currently at 11:00AM, the note is at 2.38% and MBS are positive.

November CPI up 0.4% overall as expected, the core (ex-food and energy) expected +0.2% was better at +0.1% suggesting once again that inflation remains tame. Inflation hawks looking at the overall core data get something to think about - those who are dovish about inflation get a lift with the core CPI at 1.7%, weaker than thought by 0.1%. Not much lower, but enough to keep the long end of the curve from breaking out of its two-month narrow range.

Weekly MBA mortgage applications declined 2.3% from the previous week, with purchase applications -1.0%, refinance apps -3.0%. Purchase applications are up 10% from a year ago.

The focus today in markets is the FOMC meeting that will conclude at 1:00PM. It is widely expected there will be a 0.25% increase in the Federal Funds rate. As I noted yesterday, the focus is more on what the policy statement reflects about additional rate moves in 2018 and comments about the lack of inflation that has kept the Fed and other central banks looking for answers why price increases in wages and goods have not increased based on years of economists’ models that are not working this time. Janet Yellen will hold her press conference at 1:30PM. After initial remarks, she will field questions. Besides the meeting, the Fed will release its quarterly forecasts for inflation, unemployment, and GDP.

Current thinking in Washington is that the House and Senate are closing in on working out the differences between the two versions of the tax bill and will have a plan to vote on next week. This afternoon, Trump will host the negotiators for his final push to get it done next week. Still a few issues, but from what I read they are expected to be resolved in the next three days. He will speak after the luncheon and before the FOMC policy statement. Both bills proposed slashing the corporate tax rate to 20% from 35%, but negotiators were discussing on Tuesday whether that rate may rise to 21% in the final bill. The final bill will increase the federal deficit between $1.4 and $1.5 trillion.

Inflation numbers came in at about what was expected. Today is now all about the Fed as I am not expecting much movement until at least when the FOMC meeting concludes. The markets are mostly expecting a .25% rate hike. It is very doubtful that the Fed will surprise the markets by doing something more.  However, rate volatility could come into play if they give the expectation that many more rate hikes are expected next year.