Jun 282017

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By G. Steven Bray

Mortgage rates remain near their lows for the year and still are looking for a source of inspiration. That inspiration could lead rates lower or higher, so let’s look at the possibilities.

We have two main foci at this point: economic data and central bank chatter. Recent US economic data, except for housing data, has been surprisingly weak. Particularly interesting for bond markets has been inflation data, which once again is below the Fed’s target of 2% and has been trending down. The Fed’s favored measure, the PCE index, is released this Fri. If it confirms the decline, rates could improve.

Next Fri, we get another jobs report. The last two have been a bit stinky. Another month of sub-par job growth really could rattle markets and rally rates further.

Our other focus is central bankers. Federal Reserve governors finally are acknowledging declining inflation, but so far the official line is that this is a temporary phenomenon. As such, only a few governors are suggesting the Fed should pause its rate-hike plan, which is keeping some upward pressure on rates. It didn’t help that yesterday the head of the European Central Bank (ECB) said he believes the inflation dip is transitory, and he expects inflation to accelerate.

I still recommend that you stay cautious if you’re floating your rate. I think it would take less inspiration for rates to move higher.

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