Oct 312017

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By G. Steven Bray

If you haven’t locked your mortgage rate, this week could provide a great opportunity. Interest rates have been on a gentle path higher since early Sep. Markets generally are reacting to positive economic data and the possibility of tax reform.

This week should provide four big headlines that could move rates, and two involve the Federal Reserve.

The Fed meets this week for its next to last meeting of the year. Pretty much no one expects the Fed to change short term rates Wed, but analysts will slice and dice the post-meeting announcement to try to predict the Fed’s future actions. Of particular interest will be any reaction to persistently low inflation.

The second Fed headline is the expected nomination of the next Fed chair. Trump is expected to nominate Jerome Powell. Powell is seen as more likely to keep interest rates low and friendlier towards measured deregulation. Markets also like that he already is a Fed member, which provides some continuity. Rumors of his nomination pushed rates down Fri and Mon, but it’s quite possible the actual announcement could bump rates still lower.

The third headline is the tax reform plan, expected on Wed. Rumors are circulating that the tax cuts could be implemented in a staggered fashion over five years. While markets still will view the cuts as positive for the economy (and bad for rates), up until now they’ve been trading on expectations of an immediate economic boost. A staggered rollout would dampen their enthusiasm and could be positive for rates.

Our final headline is probably the least important, which is funny because it used to pack such a punch. Friday, we’ll get the monthly jobs report. Markets are expecting the report to show 300k jobs created in Oct. I think the report would have to miss the mark significantly for markets to even care.

All of these headlines overlay the factors we’ve discussed the last few weeks. Economic sentiment remains frothy in markets and among consumers. Inflation is minimal, and expectations are it will remain that way. Markets are mostly ignoring other news, both domestic and overseas. The takeaway is that this week’s headlines could bump rates lower, but be prepared for them to rise again once the headlines fade.

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