Mortgage Rates Stuck in Narrow Range

Mortgage rates had a boring day despite the presence of the Fed Announcement.  The FOMC statement was one of confusion on the part of the Fed.  No doubt the Fed wants to increase the FF rate, if for no other reason to have the latitude to lower it when (if) the economy rolls over. The meeting made no comment about when, as it skirted the issue and discussed other issues. Two interesting statements; the first from the last meeting, the second from this meeting suggest the Fed believes it has to move but probably sees the headwinds.

By tomorrow morning markets will forget the debate and analysis of the policy statement. The advance Q2 GDP data will be released tomorrow morning and is expecting an increase after Q1 growth was lower due to bad weather. The inflation gauge in the report may not tell the complete story as most of the rapid decline in inflation has come in July with commodity markets collapsing. Weekly claims are also in the headlines at the same time. 

The Fed still wants to get off zero rates, and will increase the FF rate sometime in the future (probably not September, but now some are saying December – I am still holding fast to 2016). The increasing consensus is that an increase of 0.25% will not cause any major concerns in financial markets. The Fed believes the housing sector is improving (June pending home sales this morning -1.8%). The Fed believes the employment sector is improving, but wanting more evidence. A rate increase, according to stock gurus, will increase equity markets because it would indicate economic growth.

The models remain bullish for the moment but long terms rates are stuck in a narrow range. A move below 2.30% on the 10yr will take a lot of the technical momentum away. Tomorrow GDP, next week July employment. China’s market movement still a major factor for interest rate direction, if selling remerges in US indexes money will move to safety. Looks more and more likely Greece will get a debt restructuring regardless of Germany’s resistance.

In summary, bond markets weakened slightly (again) today as investors digested the Fed's latest economic views. Overall, we are still closer to the bottom of recent ranges than the top, but our inability to rally further may be indicative of higher rates looming. Mortgage bonds are however in over bought territory which suggests the odds of rates going up in the near term are higher than going down. That being said use your personal risk/reward tolerances and float or lock according to them.