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By G. Steven Bray
As we’ve discussed many times, when the Federal Reserve hikes short term interest rates, it doesn’t necessarily mean mortgage rates are going up. Such was the case again last week. The Fed hiked the federal funds rate by a quarter-point last Wed, and mortgage rates have improved every day since.
Markets really weren’t interested in the rate hike itself as the Fed had telegraphed that for weeks. They were interested in the “dot plot” – the Fed governors’ predictions of future rate hikes. Those predictions were much tamer than markets had expected, apparently meaning the Fed doesn’t see the economy revving up as much as investors had speculated. This let the air out of the bond market balloon, and rates relaxed back into their recent, familiar range.
Another factor pressuring rates this year has been speculation about the effects of the Trump agenda on the economy. Exuberance would inadequately describe the reaction of investors to the various policy prescriptives. However, as the first and highly anticipated action, health care reform, stumbled this week, rates slid further.
The House is scheduled to vote tomorrow on the health care bill. If the bill fails or the vote is delayed, I look for rates to make further gains, possibly setting new lows for the year. Alternatively, if Ryan is able to pull the bill across the finish line, rates could bounce quickly higher.