Easy Money Keeps Flowing

Yesterday’s Fed meeting was nothing that we didn’t expect, reiterating that they will keep easy money policies in place until inflation and unemployment are where they want them. We talked yesterday about the immediate scare that inflation can have to the MBS market and how Jamie Dimon expects it to run hot as the US enters into a “Goldilocks moment” created by mass government spending and stimulus. The Fed, on the other hand, sees this uptick in inflation as more of short term force. The mortgage market hopes the Fed is correct and was happy to hear that the Fed will continue to buy up Mortgage Backed Securities. However, tomorrow is the big inflation day that we have been talking about for months. We will be getting year over year inflation which is expected to be 3.5%+. We expect this to spook the MBS market and push rates higher.

Unfortunately for the labor market, we had a really disappointing Initial Jobless Claims reading come in this morning. This is the second week in a row that we have seen an increase in jobless claims. Remember that Initial Claims are those who are filing for unemployment benefits. That number grew by 16k to 744k while the continuing claims number which looks at who is still getting benefits from the prior week was down 16k. So when you look at the country as a whole, including Pandemic Relief efforts, 18.2 million people are receiving benefits through the government today compared to the 3.4 million a year ago.

Mortgage Backed Securities were up 22 bps when we sent out commentary yesterday marking it the 3^rd green day in a row. Unfortunately, throughout the day, they lost all of their gains and closed in the red. This morning, they are up another 22 bps. We recommend locking in the gains we have seen in the past week before tomorrows inflation report comes out.

Have a nice day everyone.