This past week was a classic example of how good news means bad news for bonds and home loan rates.
A little trade deal with Japan, solid housing numbers, and hopeful news on the U.S./China trade dispute was enough to erase the previous week’s modest improvement in rates.
And on top of it all, Fed President James Bullard was out saying the Fed has to cut rates further, despite the U.S. economy doing well. At the moment there is over a 70% chance the Fed will cut the overnight Fed Funds Rate by .25% by years end.
What homebuyers and those looking to refinance must understand is that Fed rate cuts do not equal lower home loan rates. Fed rate cuts are designed to keep the U.S. economic expansion alive while promoting inflation, and if the Fed is successful in that endeavor, there is a limit to how low home loan rates can go.
On the other hand, if the Fed is unsuccessful and our economy slows further, and our inflation rate cools further, then we will see lower home loan rates in the future. Think bad news is good for home loan rates.
Bottom line: home loan rates have essentially moved sideways to slightly higher in the past few weeks, but still remain just above three-year lows making it a great opportunity to refinance or purchase a home.
The markets will continue to be impacted by the most important news story to follow, the U.S./China trade negotiations, which have been positive of late. The circus that is Washington, D.C. will also be in focus, while key economic reports may round out what could be a volatile week.
The big report will come on Friday with the government’s Jobs Report for September. How this report goes could impact what the Fed does with interest rates for the rest of 2019.
Several key manufacturing reports will be released as the sector slows under the weight of the tariff issues.
Reports to watch:
- Manufacturing data will come from the regional Chicago PMI on Monday followed by the ISM National Manufacturing Index on Tuesday. The ISM Service Index will be released Thursday.
- On Wednesday, the first of two labor market reports will be delivered from the ADP Private Payrolls Report.
- On Friday, the government’s Jobs Report will be released that covers Non-Farm Payrolls, the Unemployment Rate, and Hourly Earnings.