Mortgage rates are unchanged from Monday.
In case you missed the Fed’s statement following their monetary policy meeting yesterday they indicated that they would raise rates on a gradual basis. This means that the market now thinks that Fed will increase interest rates on a slower pace than previously expected. At first glance this may seem like good news….but in fact this is not favorable for mortgage rates. Why?
It’s been a while so I will reiterate that inflation is the primary enemy of mortgage rates. When a lender makes a loan and will be repaid in the future they have to take into account the projected purchasing power of that future repayment in setting a rate of interest to charge a borrower.
Since the great recession inflation has consistently been below the Fed’s target of 2% which is part of the reason why mortgage rates have remained near historically low levels. In fact, the Consumer Price Index was reported today and it showed prices continuing to rise by less than 2% on a year-over-year basis.
However, the interest rate markets are forecasting that inflation will be picking up in the near future. This is evident in mortgage rates increasing by .25%-.50% over the past month.
When the Fed increases short-term interest rates is helps to curb inflationary pressure. Therefore, by the Fed taking a slower approach to raising rates than previously thought it is more likely that they could get behind the curve in fighting inflation. This is why yesterday’s announcement was actually unhelpful to rates moving forward.
I am going to shift to a locking bias given this new information.
Current Outlook: locking