Mortgage Rates Retreat After Feds Statement

Mortgage rates ended up higher today than yesterday’s close, but not as high as they were before the Fed’s statement. This morning’s shocking report from ADP set the stage as it was much stronger than anticipated.  This was followed by the ISM Manufacturing report and the employment figure within this number. It does not take a rocket scientist to start connecting the dots as the risks are greater that the projected number on Friday might already be surpassed.

But jobs are good, right?  So why is this bad?  It is not bad for the economy.  It is merely bad for rates.  In general, stronger economic data (especially when it's the jobs report) tends to push rates higher.  Essential point shows this morning's data might lead to think Friday's big jobs report might be even stronger, so the traders in the bond markets might be leaning toward higher rates preemptively.

The Fed statement overall did nothing that was new or critical.  The one thing though, is the Fed now is believing inflation will hit its target.  This is different from the previous statements that were more uncertain. Now that the meeting is over markets will start looking for March as the first move higher - mostly conjecture presently about what the economy and inflation will do with the Trump administration’s promises of tax cuts, re-regulation, and particularly fiscal spending. So far, the only fiscal/private project I know about that is about ready is the Keystone pipeline and the Dakota pipeline. Debate is lively among bond traders and stock investors whether the Fed will move two or three times this year. If the Fed holds pat and does not move in March, we would only expect a maximum of 2 increases this year. Then again, with all the Trump uncertainty about economic growth, in the end the Fed may not be able to move at all this year. We hold that Trumpism will not match the early forecasts that were too optimistic (GDP 4.0%, wage growth and increased consumer spending).

In summary, following the FOMC, the bond markets rallied.  Bonds opened much weaker than yesterday resulting in banks hammering rates.  By the end of the day, we are again hovering in the middle of the range so motivation to do something is lacking for me.  If you like it lock it, otherwise let’s hope something (NFP) goes our way soon…  the only fear – DO NOT GET GREEDY.