Market Commentary

Updated on March 20, 2019 2:47:59 PM EDT

This week's FOMC meeting has adjourned with no change to key short-term interest rates and brought us several favorable notes. First, the Fed now believes that no rate hikes will be needed this year and only one bump is expected in 2020. The change from two hikes this year to zero was agreed upon by 11 of the 17 members. Some analysts felt the Fed would go from two hikes to just one this year, surprising many that they felt that strongly enough about potential economic weakness to make such a drastic move. In fact, the Fed's revised economic projections for 2019 has the GDP lower than previously thought by 0.2%, unemployment higher by 0.2% and inflation down by 0.1%.

They also said they will slow their balance sheet reduction plan in May and then end it in September of this year. The will reduce the amount of Treasury securities falling off their balance sheet from $30 billion a month to $15 billion starting in May. They will continue to let mortgage bonds roll off their holdings but in October will start buying Treasuries with the proceeds.

It is very hard to find any bad news for mortgage rates in this afternoon's events. You would be hard-pressed to come up with a more bond-friendly set of events than we have today. We got confirmation that the Fed feels the economy is slowing and doing so at a pace that will prevent further Fed intervention (raising rates) this year and limited action next year. The balance sheet reduction change means the Fed will be buying more bonds starting in May and more again come September. That additional buying should help keep yields and mortgage rates lower the rest of the year, assuming there is not a drastic change in the economy.

Both stocks and bonds have strengthened from where they were this morning. The Dow and Nasdaq have moved from negative ground earlier today to up 13 and 51 points respectively. The bond market has extended its earlier gains, currently up 24/32 (2.53%). This is enough of a move to cause many lenders to improve rates intraday by approximately .125 - .250 of a discount point from this morning's levels.

There was no relevant economic data posted this morning. Tomorrow has two releases, but neither are considered to be highly important. The first will be last week's unemployment figures. They are expected to show that 223,000 new claims for unemployment benefits were filed last week, down from the previous week's 229.000. Since rising claims is a sign of employment sector weakness, the higher the number the better the news it is for mortgage rates. However, because this is only a weekly update, it will take a wide variance from forecasts for it to directly influence mortgage rates.

The monthly report will be Leading Economic Indicators (LEI) for February at 10:00 AM ET. The Conference Board is expected to announce a 0.2% rise in the indicators, meaning they are predicting modest economic growth over the next three to six months. This data is considered to be moderately important, but likely will not have a significant impact on mortgage rates. A decline would be considered good news for the bond market and mortgage pricing.

 ©Mortgage Commentary 2019


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