Federal Reserve

“We are good where we stand right now.” (Fed President James Bullard — January 10, 2019) Stocks continued to react positively to Fed Chair Powell’s Jan 4th speech, where he essentially said, “we have your back” — meaning that the Fed will be “flexible” and may not raise rates at all in 2019.

There is an old saying in the financial markets: “Don’t fight the Fed.” This means that if the Fed is saying or doing something (hinting no rate hikes) that helps stocks, that theme will continue until the story changes.

Typically, when stocks move higher, so do long-term rates, like home loans. And this past week, we saw the recent trend of lower rates get disrupted.

Even though the recent trend of lower rates — the lowest since the Spring — is very much at risk, we should not expect long-term rates to move too high. Why? Inflation is not a threat.

Fed President Bullard, quoted above, also said he expects inflation to be near current levels for the next five years. If that is the case, home loan rates will remain relatively attractive for longer than most expect.

The Fed is very data-dependent, meaning they will watch the incoming economic reports to help them determine their next move with interest rates. This week brings a full slate of economic reports including numbers on housing, manufacturing, consumer spending and overall sentiment.

It would take a surprising positive change in economic data to cause the Fed to hike rates before June.

Some economic data, like Retail Sales and Housing Starts, may not be released if the government shutdown continues.

The uncertainty behind the ongoing U.S. government shutdown and U.S./China trade dispute continues to provide support for bonds and home loan rates. Should these events come to a positive resolution, bonds may drop, and rates may rise.

Reports to watch:

  • The wholesale inflation reading Producer Price Index will be released on Tuesday.
  • Manufacturing data from Tuesday’s Empire State Index will be followed by the Philadelphia Fed Index on Thursday.
  • Retail Sales may be released on Wednesday, depending on the government shutdown situation.
  • Housing data from the NAHB Housing Market Index will be delivered on Wednesday and possibly Housing Starts and Building Permits on Thursday.
  • Weekly Initial Jobless Claims will be announced on Thursday.
  • Friday brings Consumer Sentiment.

If you or someone you know has any questions about home loan rates, please give me a call. I’d be happy to help.

Related Articles

There are rumors that our Fed is considering an idea to abandon its present 2% target rate for inflation in favor of a floating target where inflation would be allowed to rise above 2% for some time before considering hiking rates. This comes with two consequences that mortgage lenders, real estate…
Read More of the post Changes That Could Affect Rates

U.S. bond yields and home loan rates ticked modestly higher this week as the world watches the U.S. and China have their first serious talk since July. There is a growing sentiment that the U.S. and China will agree to some short-term measures like a postponement of tariffs, while the…
Read More of the post Fed Rate Cut Coming — But Don’t Wait

Recession fears were back in full swing this past week, thanks to the weakest manufacturing report since June 2009, which was the last month of the Great Recession. Manufacturing makes up 12% of our economy, while consumer spending makes up nearly 70%. So even though the consumer remains strong, markets…
Read More of the post Slowing but Growing

Good news is typically bad news for bonds and home loan rates. That has not been the trend of late, and certainly not this past week. Durable Goods Orders is a report which shows buying demand for products with a life cycle beyond 4 years — think cars, washing machines…
Read More of the post The US Economy Remains “Durable”