The Battle Over the 25 DMA Continues

President Trump’s new director of his National Economic Council, Larry Kudlow, has some advice to the Federal Reserve.  During an interview with CNBC, Kudlow said of the U.S. economy, “Just let it rip, for heaven’s sake.”  By this, he means to just allow the markets to take care of themselves without raising short term interest rates to help slow the pace of inflation.  Kudlow would rather just allow the economy to boom without fearing the consequences of such move.  He has been highly critical of the Fed’s five interest rate hikes since December of 2015.  This highly controversial view would certainly have major implications to the financial markets if followed.  Since the Fed is an independent agency, they will not likely allow the Trump administration to have too much influence on the path of rate hikes they choose.

Mortgage bonds closed out the trading session yesterday just above their 25 day moving average.  Since this moving average has held bonds from making improvements since September of 2017, this is a significant battle happening for the near term direction of mortgage interest rates.  It’s too early to say whether or not bonds will be victorious or not.  However, the odds are against bonds at the current time.  It would be an encouraging sign to see bond prices make gains today and close again above their 25 DMA.  However, it will take a few days at least for us to confirm a break out, if that’s the direction bonds go.

Unless bonds make a decisive break above their 25 DMA, the safe play remains to maintain a locking bias.