There is a 0% chance that the Fed will bump interest rates when they meet next week. But don’t get too complacent, Janet Yellen & Co. are still committed to two more hikes this year. The timing of these exercises in “right sizing” the cost to borrow money will be dependent on various measures of economic growth. A biggie is GDP. The first reading of our collective output for the first quarter showed a paltry 0.7% increase. The Fed wants to see 2.0%-2.5% and many economists believe that 3.0% should be the minimum expectation for the next few years. Zero point seven is closer to 0 than it is to 2. Unless the Fed wants to blindside the American people, there will be no adjustment to the Cost of Funds Index next week.
Speaking of the Fed, former Fed Chair Alan Greenspan’s favorite measure of inflation was the Employment Cost Index, which, just like it sounds, measures the cost associated with keeping a person on the payroll. While the latest calculations published this morning show that this burden for employers has risen 0.8% last quarter, it should be more than offset by the proposal of the corporate tax rate dropping from 35% to 15% next year.
The proposed overhaul on income taxes is said to simplify what everyone pays. Corporations will pay 15% instead of 35%. Individuals will pay 0%, 10%, 25%, or 35%. The estate tax and the alternative minimum tax are also said to be eliminated. Stocks have been down and bonds have been up since the plan was published. Though the specifics weren’t yet worked out, I am certain that the IRS will continue to collect just as much out of you and me.
Pending Home Sales report a 0.8% drop from last month, where a 5.6% increase was logged. Durable Goods also dropped from a 1.2% advance to 0.7%.
Freddie Mac reports that the average 30 year loan is going for 1.03% right now. As usual, I am cheaper than that.
The markets are eagerly awaiting any details about the tax reform that Treasury Secretary called the “largest in U.S. history”. It is anticipated that the Trump-spawned plan will help small businesses like the many run by Trump’s hard core buddy Jesse James (pictured here). Secretary Mnuchin said that the goal of reduced regulation will lift the GDP to 3%. Stocks and Bonds are positively poised this morning and set to spring when the announcement hits in a few hours.
Twenty years ago yesterday, I graduated from college. Like this guy, I wondered what in the world I was supposed to do with the rest of my life. Though some days I still feel the same anxieties, it is nowhere near the state of mind boggling perplexity that I felt on that momentous occasion. Nowadays. the greatest flummox I feel is in deciding what in the world to write about that you might find mildly entertaining, marginally interesting, or worth passing along to your clients.
After a month long march downward, mortgage interest rates turned a corner and are heading back up. Here are a few of the factors impacting that trend today:
New Home Sales rose 5.8%, to an annualized 621,000 units–above the 590,000 predicted.
Trump’s tax reform is expected to happen for real. The rate on U.S. companies is expected to drop from 35% to 15%; no word yet on individual rates.
Consumer Confidence, though lower than expected, is still at record highs.
Large-cap company stocks are thriving, driving the DOW up 1.08% this morning.
Despite the lower number of homes currently available for sale, homes are selling quickly. Existing Home Sales rose by 4.4% since last month with a total of 5.71 million units sold across the country. This was higher than expectations by about 14%, and the most number of homes sold in a single month in the last ten years. Nationwide, a home is only on the market for an average of 34 days right now, compared to 45 days last spring. As a result of the quick turn around, the median home price has risen 6.8% over the same time frame to $236,400.
Interest rates have improved over the last month, but appear to have found a stopping point and are reversing higher.
Mortgage pricing is still backing off of the 2017 highs this morning. Dallas Fed President Robert Kaplan reiterated the Fed’s three rate hike plan for 2017. There is a 0% chance of a hike on May 3rd, but still a 44% chance on June 14th.
After a week-long run up, Bonds are selling off today for no good reason other than it seems like a good time to harvest profits from the price gains. There are no data points released this morning. The Fed’s Beige Book will be opened to the public this afternoon. The Fed Fund Futures market is forecasting a 44% chance of a rate hike in June, which is down from last week’s 60% chance. It seems that everyone thinks that interest rates will be higher in the future, but that future gets further and further away.
A delay is tax reform and a decline in Housing Starts are boosting bonds and bothering stocks this morning. Even though a bump in Building Permits offsets the weather-delayed housing starts, and the delay in tax reform is just a delay, the news still elicits a reaction in the markets. The year-over-year data still shows new construction growing at a double digit pace. It looks like traders are bored and looking for any play they can get. As for us, let’s take all of the low rates we can get.
The markets are closed today in honor of Good Friday and this was the manliest, but super cute, Easter photo that I could find. Defying all odds, the interest rates are starting to creep a little lower. Brewing conflict with North Korea, ongoing Afghanistan blasts, and Trump Tweets are alarming enough to maintain monetary uncertainty. I have no predictions for the future, but signals are pointing great mortgage rates for the next few days–which is longer than those eggs are going to last in the bed of fake grass. Happy Easter to everyone.
The markets close early today, and will be closed tomorrow in honor of Good Friday. Traders tend to hedge going into three day weekends, so there could be a little selloff today. On top of that, you can see from the above graph that the pricing for mortgage funds is again at YTD highs and ripe for a correction. To the contrary, and keeping us pegged at the current ceiling, are a couple of things:
1. Talking monetary policy last night, President Trump said that he favors low interest rates, thinks that the dollar is too strong, and is undecided on whether or not he will swap out the current Fed Chair when her term renews next year.
2. The Producer Price Index released this morning showed that the cost of making new stuff declined -0.1% last month.
3. Initial Jobless Claims are at low levels not seen in 40 years, when the population was not as numerous