The Fed Expects the Best but Prepares for the Worst

Good afternoon!

The Fed spoke about its longer term plans with mortgage rates which will continue to fuel the housing market. They claim their plan is to keep mortgage rates low for the next couple of years by keeping the Fed Funds rate close to 0% and continuing to buy mortgage backed securities. This plan is in direct opposition of the Feds financial projection for 2021 which included annual unemployment under 5% and 4%+ GDP. The thought is that if the economy is in fact so strong, there would not be the need for the artificial stimulus.

We predicted that we would see a slowdown in initial jobless claims through out the holiday season as employers tend to hang onto their employees through the holidays and layoff early in the year. However, we have seen growing unemployment over the past few weeks. Today, the report showed 885k new claims which is a large number especially during a time of the year when claims should hold steady.

Mortgage  backed securities continue to be held up by their 25 day moving average. With such a strong floor of support and a lot of room to the upside, you may float if you closely monitor the market.