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By G. Steven Bray
Amazingly, mortgage rates ended 2015 about where they began the year despite the predictions from talking heads that rates would rise. As we start the new year, they’re making those predictions again. So will they be right this time?
Yes, the Federal Reserve did raise short-term rates in Dec, and chances are they’re hike them further at upcoming Fed meetings. But remember that mortgage rates are much more sensitive to expectations for inflation and economic growth than the Federal Funds Rate. Inflation still seems very tame, and growth appears to be flagging. In the medium term, I don’t see much incentive for rates to rise.
But let’s look at the short term. This is a busy week for the markets. The first day back from vacation brought a big sell-off in the equity markets over concerns about global growth, but that may be temporary. I suspect US bond markets are more interested in Wed’s Fed meeting minutes and Fri’s jobs report. The Fed minutes may provide insight into the Fed’s plans for future rate hikes. Fed governors seem to be saying the hikes will happen more quickly than markets are expecting. The jobs report may tell us whether inflation pressures are building. Wage inflation has been almost non-existent during this recovery. Any change to that trend will catch the attention of markets. Both results would be negative for interest rates.
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