Rate Update for August 6, 2008
As you’ve probably heard by now the Fed did elect to leave short-term rates unchanged in their policy announcement yesterday. If you watched yesterday’s you tube video you know that in and of itself their decision to leave rates unchanged has not directly impacted mortgage rates. Instead, their post policy statement is what can drive the markets.
So what did they say and how will impact mortgage rates?
In their statement the Fed shied away from their inflationary concerns which they had expressed in their last statement 6 weeks ago. This means that they are less likely to hike rates anytime in the near future. Contrary to popular belief this will actually cause mortgage rates to rise. Why?
First, the stock market likes it when the Fed keeps short-term rates low because it helps corporate profits. The stock market rallied yesterday pushing bond prices lower.
Second, a Fed rate hike would help curb inflationary pressure in our economy which is ultimately what interest rates react to. Therefore, by signaling that they may be on hold for a while the Fed essentially told investors that inflationary pressures will be left unchecked in the near-term. This is not good for mortgage rates.
We are shifting to a locking stance.