Good Afternoon,
The Fed’s statement is out and the Federal Funds Rate remained at 2.0% as expected, but what is the Fed’s underlying communication about the future and how will all this affect mortgage interest rates? Initially, and we are already seeing it happen, rates will most likely increase.
Here is what’s going on:
The Fed’s Statement talked specifically, but very carefully, about inflation, monetary policy and economic growth. Inflation was a topic that could not be ignored, but a confident position was not held. Verbiage like, “inflation has been high”, and “inflation remains uncertain”, and “The committee expects inflation to moderate” were used. Since a strong position was not held, a fast increase in mortgage rates may not materialize until further analysis, thankfully. However, I would still expect rates to increase due to the light implication of how serious inflation actually is. They will not come out and say it though.
Monetary policy will substantially ease, which is good news because it basically means that more assistance will be given to lenders when needed. The government’s acknowledgement of assistance could help mortgage backed securities in the near future by offering more liquidity, which in turn can help more homeowners.
Simply Put: The Fed’s statement about inflation today stirred the beginning of investors dumping bonds, which has already hurt mortgage interest rates today. Remember, the way the Fed speaks is very specific and careful. No strong positions were held. This is good because although inflation was hinted to be getting worse, it was not specified as such. The Fed actually said that inflation could moderate in the future, which will help the bond market then, but when you look at the whole picture all arrows point to inflation increasing. If this is the case then rates will continue to rise as well.
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