11 Mar Waiting on a Plan
The whipsaw effect is in full swing this morning with stocks giving up some of yesterday’s gains. This morning’s shift has been blamed on President Trump for failing to deliver details of his plan to help economically fight back against the negative impact of the coronavirus. The President’s plan is expected to have a payroll tax cut that will last through the election along with unspecified measures expected to bring relief to workers. My concern with this plan is that it will do little to help the businesses that are impacted, especially retailers who will suffer from a lack of foot traffic, entertainment and recreation, as well as travel related companies. My hope is for a deeper Quantitative Easing, where the Fed essentially prints more money to push up the markets. This has proven to work well and will likely be the path taken.
The Consumer Price Index (CPI), which measures inflation in the retail level, showed a modest increase of just 0.1% for the month of February. This was inline with the market’s expectations and does not account for the time frame after the extensive market panic over the past couple of weeks. Given that many businesses will be struggling, and considering that lower oil prices will lead to lower prices paid for goods and services, I expect to see the March report show even a weaker level of inflation. This is good news for mortgage interest rates, which are largely determined by inflation levels.
In the short term, we will maintain our locking bias. Rates have moved up sharply in the past couple of days. The market’s volatility has created a great deal of panic for people wanting to refinance. I believe rates will go down from here in the future. However, the move will not be in a straight line. We will see points of rates moving higher, as we are seeing today.