13 Jun Awaiting the Fed Rate Announcement
Mortgage bonds are holding steady so far this morning, as investors await the highly anticipated Fed announcement on interest rates that is due out at 12:00 p.m. mountain time. The Fed will be raising the Fed Funds rate by another ¼%, which the market is already anticipating. Therefore, the impact of the announcement should already be priced into the markets. The key concern will be the tone of Fed President Jerome Powell in his interview following the increase. With inflation moving higher, the labor market tightening and the overall economy growing at a fast pace, the worry will be for unexpected moves the Fed could take to help slow the growth. That could impact mortgage rate pricing if the statement is more aggressive than expected.
The Producer Price Index (PPI) once again showed a stronger than anticipated increase, with the Headline number now pacing at an annual growth rate of 3.1%. This is much stronger than the 2.6% rate reported last month. When subtracting food and energy prices, the annualized rate grew from 2.3% up to 2.4%. Although this doesn’t necessarily translate to higher consumer inflation, it is a leading indicator as to the overall costs that will eventually be passed down to the end consumer. As manufacturing prices move higher, you can expect consumer prices to maintain pace in the long run.
Given the potential volatility associated with today’s Fed announcement, the safe play will be to maintain a locking bias.