Central Banks Make Big Announcements

Yesterday was a big day for central banks around the world, starting with the Federal Reserve right here at home.  As expected, the Fed did raise interest rates by ¼%.  However, the surprise came in the announcement following the rate hike that said the Fed now expects a total of 4 rate hikes in 2018.  This is one more than the three the market has been expecting, and could set the stage for increased volatility in the future.  The market seems a little unsure as to whether or not it agrees with the news.  There is currently only a 50% chance of this happening already priced into the market.  If investors begin to drive that percentage higher, we could see mortgage rates move higher to price in the additional Fed rate hike.

Secondly, the European Central Bank (ECB) announced that it would soon be stopping its version of Quantitative Easing, as it now sees the European economy as being able to continue to grow without the additional help.  This is a strong statement and clear sign that the world economy is growing.  With both the US and the EU on a path of higher interest rates and stronger inflation, we should continue to see mortgage interest rates continue to tick higher over time.

Retail Sales came in much stronger than expected, increasing the chances of 2^nd quarter GDP exceeding what the market has been anticipating.  With Retail Sales being a primary indicator of consumer economic strength, the 0.8% growth rate last month is a clear sign that our economy is advancing at a rapid pace.

We are truly fortunate that mortgage rates haven’t increased over the past couple of days.  We could see rates slightly improve today and then weaken in the near term.  We will maintain our locking bias.