Good afternoon everyone!
Yesterday’s Fed meeting had some key information for the mortgage market – so let’s break it down.
Fed Chairman, Jerome Powell reaffirmed his stance that the Fed will continue easy money policies and stimulus until the labor market has completely caught up from the Winter’s slump and inflation is running at 2%. Now, on one hand this is very good news for mortgage rates as the Fed is expected to buy up billions of dollars in Mortgage Backed Securities. In addition, the majority of Fed members indicated that the Fed’s Funds Rate will be held around zero through 2023. Both of these things put downward pressure on mortgage rates. On the other hand, this amount of QE and future stimulus will have some immediate inflationary effects. (Remember that inflation is the enemy of the bond market because the return of fixed assets is worth less as the dollar loses value) We will be getting inflation numbers in tomorrow which will be high because it is a year over year reading. At the end of the day, the Fed recognizes the momentum the economy has gained since the vaccine rollout and is in no rush to put a roadblock in front of it.
Mortgage Backed Securities started the day with a large drop to their 50 DMA. Luckily, they have used that floor as a springboard and are now up 6 bps from market open. Because we will be getting inflation in the morning, we are going to hold a locking bias and avoid some of the turbulence that may bring.