Mortgage Rate Update February 20, 2014

Mortgage rates worsened modestly yesterday afternoon following the release of the minutes from the Fed’s most recent monetary policy meeting.

The minutes revealed that the Fed’s Open Market Committee discussed the possibility of raising short-term interest rates. Up until now it has been widely expected that the Fed would not begin raising short-term rates until 2015. However, the recent decline in the headline unemployment rate to 6.6% has some on the committee believing the Fed will need to begin upping rates sooner.

With most of the mainstream media attention focused on new Fed Chairwoman Janet Yellen one overlooked factor is that many of the seats on the committee have also turned over recently/ Of those, about 6 are now occupied by Fed officials with a reputation for being “hawkish” (meaning they oppose monetary stimulus to stimulate the economy). Therefore, it should not a huge surprise that their comments appear in the meeting minutes.

The reality is that a core group of the Fed still supports keeping short-term rates low into 2015 so I don’t expect this to get out of hand unless we begin to see inflation rise. Speaking of, this morning’s Consumer Price Index showed ongoing tepidness of price pressure.

From a technical perspective the US 10-year treasury note is stuck at 2.70%. Unless this yield can close below this threshold I believe rates are as good as they are going to get. Stay tuned though, stocks look like they may be headed lower which could help rates.

Current Outlook: floating so long as US 10-year treasury yield stays at 2.70% or below.