Fed Raises Rates

Fed Raises Rates

As expected, the Federal Reserve announced another 1/4% interest rate hike today.  More importantly, they stuck with the plan for a total of three interest rate hikes in 2018, three hikes in 2019 and two projected hikes in 2020. Since many anticipated the Fed would accelerate their projections, this was welcomed news to the U.S. stock market.  Immediately after the announcement, mortgage bonds temporarily improved. However, they have since lost steam and are now heading into multi-year low territory. This places mortgage interest rate pricing at multi-year highs.

One point of interest is that the Fed lowered their Unemployment Rate projection down to 3.6% for next year. This insanely low level would put a wind behind the sails for higher wage based inflation, as employers will be forced to increase salaries to attract and maintain talent. Further, the Fed sees higher consumer inflation in the months to come. This is terrible news for mortgage interest rates, as inflation is the arch enemy of the bond market.

Mortgage bonds remain in a tight trading channel. With the floor holding rates from moving higher coming from multi-year levels in the bond market and the ceiling being a level that has held since early September of 2017, it’s anyone’s guess as to where rates will go. One thing is for certain. Bonds will eventually be squeezed to a point where they will need to make a decision. Hopefully that will be favorable to mortgage rates.

There is very little incentive to float. We will maintain our locking bias.