Waiting on the Fed to Cut

Mortgage bonds continue to weaken, as they float within their current trading range. They seem destined to test the bottom of the trading channel, which hopefully will provide support. If this level does not hold, I believe the drop will be temporary. I continue to believe that mortgage interest rates will continue to soften. However, the downward trend will not happen in a straight line.

Stocks are pointed higher in early market trading, which is adding upward pressure to mortgage interest rates. All eyes will be on the Fed this week, as investors anxiously await the results of the Federal Open Market Committee meeting, which is scheduled for Wednesday afternoon. Odds a Fed rate reduction are growing, as the Fed and outside economists come to the realization that a recession is likely in the months to come. Look, the Fed will lower interest rates. The question is “When?” As we move into softer economic times, we can expect to see the labor market weaken, which can certainly have an impact on the housing market. I see a buyer’s market nearing.

Mortgage bonds will likely face volatility ahead of the FOMC meeting announcement. I suggest locking in the near term and floating in the long term.