Mortgage rates were unchanged yesterday as the markets were closed due to Presidents Day. This morning mortgage backed securities are up slightly in early trading. There’s not a whole lot in the way of scheduled news today, and the safest bet is that rates will likely end the day close to flat. I think there is some risk that we could see rates rise tomorrow depending upon the tone of the FOMC minutes with regard to asset purchases.
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As I mentioned above, I think that the primary cause for the rise in mortgage rates in January is fear/uncertainty over the timing of the end of the Fed’s asset purchase program. This is why I think there is some risk of rising rates when the notes from the last Fed meeting are published tomorrow. I don’t see much reason for the Fed to change course any time in the near future. We do not appear to be close to hitting either 6.5% unemployment or 2.5% inflation, which are the figures that the Fed has targeted as triggers for changes to monetary policy. Additionally, economic conditions in the U.S. are fairly stagnant, and global economic numbers are getting worse. It doesn’t make much sense for stimulus to end any time soon. Any rise in interest rates would snuff out the nascent housing “recovery,” which I believe to be largely illusory and unsustainable.
Nevertheless, tomorrow’s minutes will be carefully scrutinized, and if there is even the slightest hint that the Fed may taper off asset purchases or anything of that ilk, look for rates to rise tomorrow afternoon.
Switching gears, there’s still no progress on the sequester cuts, and with Congress on vacation this week, I don’t think we’ll see a lot of movement. The Republicans are pretty well divided over the issue, and the President seems to be advocating for a short-term delay that would allow more time to come up with some sort of budget compromise. The whole thing is a mess, and I’m sure some sort of half-assed last minute compromise will be made (the cuts, which fall heavily on the military, are scheduled for March 1).
Anyway, another slow day where I don’t believe we will see a whole lot of rate movement.
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