It’s Fed Day!

Mortgage bonds are advancing higher in early morning trading, as markets anxiously await the Fed announcement that is due out at noon MST. The stock market, on the other hand, is showing signs of weakening. My belief is that stock investors fear a more bullish sentiment spoken by Fed Chairman Jerome Powell following the anticipated rate cut. If the Fed leaves investors to believe that this will be the final rate cut, that wouldn’t be good news for the stock market and could cause it to stumble. Stock investors love support from the Fed. It helps ensure gains as the Fed loosens monetary policy. Regardless of how bullish Powell’s statements are, I see further Fed support needed as we head into 2020 and beyond. Fed support may push the can down the road. However, eventually we will again find ourselves in a recession. This is the longest bull-run in the history of the stock market. It won’t go on forever.

The key to how the bond market will react largely depends upon any comments Chairman Powell makes regarding inflation. If he comments that the Consumer Price Index (CPI) has risen to a level that exceeds the Fed’s target of 2% for inflation, the bond market will sell off and rates will be pressured higher. However, if he quoted the Personal Consumption Expenditures (PCE) rate, and states that inflation remains tame, we will likely see the bond market rally. This would be the best-case scenario for mortgage interest rates.

Making a rate float or lock decision ahead of the announcement is difficult. I am hopeful that we will see mortgage rates improve. However, anything can happen. If you don’t have the stomach to take a potential loss, you may want to consider locking. If you float, have your finger on the trigger and be prepared to lock.