Rate update: Dangerous week for floating

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By G. Steven Bray

Despite the recent wild swings on stock markets, the bond market has remained rather sedate, but this week could change that. This is a jobs report week, and the Federal Reserve has made it clear it’s watching the data and events over the next two weeks to decide whether or not to raise short term interest rates. A strong jobs report typically has the potential to boost interest rates, but this week’s report has the added significance that it could tip the Fed’s hand in favor of a rate hike.

But as I’ve discussed before, in the long run, a Fed rate hike may be meaningless for mortgage rates. Longer-term rates, like mortgage rates, are more sensitive to expectations for growth and inflation. While a Fed rate hike may temporarily boost mortgage rates, once the shock wears off, I think rates are likely to return to their current trend given weakening global growth signals.

In the meantime, if you’re floating your mortgage rate, be cautious. We’ll get several other important economic reports this week in addition to the jobs report. Mortgage rates are resisting reacting to the stock market swoon, which suggests to me that investors don’t want to get caught with rates too low. Strong economic data could convince markets that a Fed rate hike is certain, which could lift rates quickly.