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By G. Steven Bray
After a quick move lower following last month’s Federal Reserve meeting, mortgage rates have moderated a bit. Concerns of a global recession prompted the move lower, and the Fed seemed to add fuel to that concern with the changes to its policy stance, announcing what is in a sense version 5 of quantitative easing, which has helped keep rates low for years.
Rates rebounded a bit when investors realized the US economy certainly isn’t circling the drain. We’ve had two strong jobs reports, and retail sales rebounded after the government shutdown. The data isn’t as strong as it was last year, but it certainly doesn’t seem to indicate an imminent recession.
Overseas is another story. At its meeting this week, the head of the European Central Bank all but predicted a recession in Europe, and European economic data continues to weaken. Britain still hasn’t figured out how it’s going to leave the European Union, which breeds uncertainty, a close friend of low interest rates. And China’s economy also is slowing, and analysts worry that a resolution to the trade dispute may not be enough to stop the slide.
So, that’s the bad news – the news that’s pressuring rates lower. But investors see a US economy that seems to be chugging along. Thus, rates are stuck in the middle – not sure which force is going to be stronger. And they’re liable to stay that way until new headlines tip the scales.
Among the predictable headlines I’m watching right now are the Chinese trade talks and inflation data. I still believe a good trade deal penned in the next couple months will put some upward pressure on rates. However, it has to happen before the Chinese economy slips too far. On the inflation front, recent reports show inflation sliding lower again, which makes the Fed nervous. Receding inflation should put downward pressure on rates.