This is a very big week for mortgage interest rates, with several key news releases that will impact the mortgage bond market. This week we have Inflation, Housing, Job data and the Federal Reserve’s rate cut. Given that mortgage bonds have been trapped within a tight trading range for several weeks, it is highly possible that we will see a breakout to either the upside or downside at some point this week. Generally speaking, the key points of reports that are coming out tend to create massive volatility before rates settle. We could see a major selloff before the Fed announcement on Wednesday, or before the Jobs data is released on Friday.
Tomorrow, we will receive an update on consumer inflation via the Personal Consumption Expenditures (PCE) report. This comes just in time for the Fed to help decide on whether to cut ¼% or if a full ½% is needed. I continue to believe that we will only get a ¼% cut, as Fed Chairman Jerome Powell is considered to be a conservative member of the Fed. Conservative members are “Hawkish,” which means they lean on the side of fighting inflation vs. stimulating the economy. Since a ½% rate cut would be considered an inflationary move, I believe he will take the more conservative approach and only cut by ¼%.
With markets still trapped, we will maintain a locking bias on short term loans. Anything is possible this week. If you choose to float, you may be rewarded. However, it is a massive risk.