Mortgage Rates Back Up After Powell's Remarks

The markets certainly reacted today from the current chair of the Federal Reserve, Jerome Powell, who was on Capitol Hill before the House as part of a semi-annual testimony. What has become the norm with a new chairman, everyone wants to know what his thoughts are as he tends to have some power to sway the markets one way or another.

Where Are Mortgage Rates Going?                     

>>> Rates are pushing higher after the Powell speech

The focus for financial market participants today was in part one of Fed Chair Jerome Powell’s testimony on Capitol Hill. Momentarily, as he will went before the House Financial Services Committee to answer questions from lawmakers about various happenings at the nation’s central bank. Earlier in the day, we had received a written statement from Powell which basically repeated what we already knew about inflation and rate hikes from the FOMC minutes last week.

Given the current economic situation and that this is Powell’s first trip to D.C. as Fed Chair, the general consensus was that he would take a diplomatic approach. Most analysts expected him to brush off recent market volatility and reaffirm the Fed’s cautious approach to gradually raising the nation’s benchmark interest rate–the federal funds rate.

However, the market's interpretation of his comments really did not come across bad or he said anything wrong.  In fact, he did a great job conveying what recent speeches and policy documents suggest we already know about the Fed's policy stance.  The only issue was one of his comments was open to the interpretation of pointing toward an additional rate hike in 2018.  Many market participants were already planning on that rate hike, but the prevailing view was for a slightly slower pace.  After the Powell comment (he simply said he thinks the economic outlook is stronger now than he did in December), some of the investors in the "prevailing view" camp shifted their rate hike outlook to the "additional hike in 2018" camp.  That was enough for mid-day bond market weakness and widespread lender adjustments to higher rates in the middle of the day.

If we take a look at the yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going), we saw it hit as high as 2.94% today before settling in at 2.90%.

It was a good run for mortgage rates, relative to the rest of 2018, but after spending 3 days in a row with mild-to-moderate improvements, rates quickly snapped back to multi-year highs today.  The general trend in 2018, as well as the general level of volatility, deserve some of the credit.  The bonds that underlie mortgage rate pricing actually are not quite back to last week's levels.  Lenders are simply quicker to adjust things for the worse when the trend has been unfriendly and when the prices of those underlying bonds have been jumping around as much as they have.

Rate/Float Recommendation           

>>> Lock now to avoid risk of rising rates

Bonds sold off sharply today, as Fed Chairman Powell testified before Congress.  While his rhetoric was not surprising, it reinforced markets' views that the Fed will continue reducing its balance sheet.  Nothing has changed here, the trend is to higher rates, and that means lock early!