Yesterday the Federal Open Market Committee raised their overnight borrowing rate 0.25% to 4.0%. Long-term Bonds and Mortgage initially loved the announcement and mortgage pricing improved. And then Chair Warsh expounded the reasons behind the rate hike, including wanting to get closer to neutral monetary policy—meaning he believes the current rates are accommodative, and causing inflation to rise. That comment took me and most of the rest of the world by surprise. Here we thought that rates were still on the restrictive side to keep price increases in check, and would be eased back down a few notches when things cool down. Hearing this, long-term rates reversed course and increased again a few basis points.
But the important thing for our clients to know is that the Fed didn’t raise ALL interest rates, they only raised the 24 hour rate. And like we’ve seen before, the broader markets were anticipating this increase and banks started raising their other rates several weeks before the announcement. Now that it’s happened, mortgage rates are showing signs of improvement. The 10 Year Treasury Note is back under 5.0% at 4.9594%
Jobless Claims, Housing Starts, and Building Permits were all reported lower today than anticipated (helpful for lower interest rates). Bank of England keeps their overnight lending rate at 3.75% (neutral for interest rates). Retail Sales and Import Prices both came in hotter than anticipated (bad for rates).
