If fruit grows on a fruit tree then what does chicken grow on?….A poultry.
Today is National Poultry Day which means that turkey sandwich you consume for lunch is actually your way of celebrating.
Mortgage rates continue to improve reaching the best levels in over a year. Whether or not they continue to improve or reverse higher will likely depend on the Fed’s comments due out tomorrow.
The Federal Open Market Committee meets every six weeks and generally speaking their announcements tend to fall in line with analysts’ expectations. In other words, there is typically not much uncertainty headed into a Fed announcement.
However, that is not the case for tomorrow when the Fed concludes its regularly scheduled two-day meeting. For many months the Fed has allowed $4 trillion to fall off its balance sheet in an effort to unload assets it acquired during the economic recovery.
However, the Fed announced earlier this year that it may decelerate the pace at which its balance sheet shrinks by reinvesting some of the proceeds it receives back into the fixed-income markets.
Translation: If the Fed begins to buy up treasuries and mortgage-backed securities they would create significant demand that could help drive yields lower.
What to Expect
If the Fed announces tomorrow that they will immediately begin to reinvest into the fixed income markets I would expect mortgage rates to improve.
However, I fear that the markets have already priced an aggressive announcement from the Fed. If the Fed delivers a more gradual message then we could actually see mortgage rates rise.
The Week Ahead
Aside from the Fed’s announcement due out on Wednesday the remainder of the economic calendar is light. I recommend a locking bias headed into tomorrow.
Current Outlook: locking