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WEDNESDAY AFTERNOON UPDATE:
Today’s FOMC adjournment and economic projections yielded little surprises.
The meeting adjourned with no change to key short-term interest rates and
the Fed outlook on the economy is slightly weaker than previously
estimated. Their prediction for Gross Domestic Product (GPD) growth is now
between 2.3% and 2.8% while they believe that the U.S. unemployment rate
will fall from its current rate of 7.7% to somewhere between 7.3% and 7.5%
by the end of the year.
Fed Chairman Bernanke’s press conference shortly after the meeting
adjourned and projections were posted also didn’t give us too much to be
concerned with or excited about. He did say that potential government
spending cuts and global economic or financial crises could create a
problem that the Fed would not be able to offset with monetary policy. We
can consider that as a warning to Washington to get their budget
differences resolved quickly. He noted the stronger unemployment numbers of
recent, but cautioned that we have seen job growth in past winter seasons
to be followed by a "spring slump."
Overall, there isn’t too much to address here. It appears the Fed is
sticking with a 6.5% unemployment rate or 2.5% annual rate of inflation as
targets to adjust current short-term interest rates, which many Fed members
believe won’t come until late 2015. They voted 11-1 in favor of maintaining
the current bond buying program of $85 billion a month in mortgage-related
and U.S. Treasury bonds. This news initially boosted stocks but they have
since come back down close to their 2:00 PM levels. The Dow is currently up
55 points while the Nasdaq has gained 24 points. The bond market is
currently down 15/32, which may be enough of a move for some mortgage
lenders to revise rates higher by approximately .125 of a discount point.
Many may opt to wait until tomorrow to reflect that change, however, the
possibility of an intraday revision does now exist.
Tomorrow morning has three pieces of economic data scheduled for release.
The first is the weekly unemployment update from the Labor Department. They
are expected to say that 345,000 new claims for unemployment benefits were
filed last week, up from the previous week’s 332,000 initial claims. That
would be fairly good news for the bond market and mortgage rates because
rising claims indicates a softening employment sector and makes a broader
economic recovery less likely.
February's Existing Home Sales will be posted late tomorrow morning by the
National Association of Realtors. It will also give us a measurement of
housing sector strength and mortgage credit demand. It is expected to reveal
an increase in home resales, meaning the housing sector strengthened last
month. Ideally, bond traders would prefer to see a decline in sales,
pointing towards a still weakening housing sector. However, a small
increase is expected, so it shouldn't cause much alarm in the bond and
mortgage markets. Bad news would be a sizable increase in sales, indicating
that the housing sector is gaining momentum. That could be troublesome for
the bond market and mortgage rates because housing and unemployment were the
two biggest hurdles the economy had to overcome. Recent reports have some
traders much more optimistic about the employment sector, so overwhelmingly
strong housing news could lead to another rise in mortgage rates.
The Conference Board will post its Leading Economic Indicators (LEI) for
February late tomorrow morning also. This index attempts to measure
economic activity over the next three to six months. It is considered to be
moderately important, but likely will not have a significant impact on mortgage
rates. Current forecasts are calling for a 0.5% increase, meaning it is
predicting that economic activity will likely expand moderately in the
coming weeks. A smaller than forecasted rise, or better yet a decline would
be considered good news for the bond market and mortgage rates.
If I were considering financing/refinancing a home, I would.... Lock if my
closing was taking place within 7 days... Lock if my closing was taking
place between 8 and 20 days... Float if my closing was taking place between
21 and 60 days... Float if my closing was taking place over 60 days from
now...
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