Waiting on the Fed

Waiting on the Fed

Mortgage bonds are flat in early morning trading, while stocks are down slightly. Although today is a relatively quiet economic news day, there are several Fed speeches and an update on the Consumer Price Index (CPI) report, each of which could impact the direction of mortgage interest rates.

 

This week’s CPI report is expected to show that the headline inflation number increased from 1.5% up to 1.8%, while the core rate is expected to remain stable at 2.1%. Any deviation from the expected could either positively or negatively impact rates. The primary reason behind the significant uptick in the headline number is due to oil prices jumping to 5-month highs. This adds inflationary pressure to the market, which creates a headwind for mortgage interest rates. As inflation heats up, mortgage rates follow. So hopefully, we will see a final number that is below that which is currently anticipated by the market.

 

We need to closely listen to the Fed as they complete their speeches this week. President Trump is once again speaking up about the need for the Fed to lower interest rates to help further stimulate the economy. Trump was clearly right when criticizing the Fed for planning three rate hikes in 2019 just about 100 days ago. Since then, the Fed changed their projected increases from 3 down to 0, which took away credibility from the Fed and showed that Trump is more aware of the risks than the Fed was. If the Fed now brings up the option of lowering rates, that could help improve mortgage interest rates. So, stay tuned.

 

Given the stagnant state of mortgage bonds, we are going to switch to a locking bias.