Mortgage rates improved yesterday following the Fed’s monetary policy statement.
As was expected the Fed did remove the word “patient” from their statement which gives them the flexibility to begin raising short-term interest rates as soon as June. It’s important to remember that the Fed does not directly control mortgage rates.
One would think that if the Fed moves closer to a rate hike that mortgage rates would suffer. However, in addition to dropping “patient” from their statement the Fed also became more cautious about the economic outlook.
Fed Chairwoman Janet Yellen effectively stated that they were prepared to raise rates but would not do so until they had more confidence in the labor market and began to see inflation move higher towards 2.00% (currently at ~1.3%). Despite the US unemployment rate being at 5.50%, which is the Fed’s target for “full employment”, wage growth remains low for most workers and the labor force participation rate is historically low. When the Fed expresses caution about the economy mortgage rates tend to benefit.
From a technical perspective mortgage-backed bonds (MBS) are trying to hold the line at the 50-day moving average. Should MBS prices fall below this level it would be a bad signal for mortgage rates. Given that fixed rate are better than they were 24 hours ago I am leaning towards locking.
Current Outlook: locking