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By G. Steven Bray
The big financial news this week is the Federal Reserve meeting. The Fed is expected to announce a quarter-point increase in short terms interest rates. That shouldn’t cause even a ripple in mortgage rates as markets long have expected it. What could make waves is the press release and post-meeting press conference.
At this meeting, the Fed will update is economic projections by way of what’s called the “dot plot.” It shows what Fed governors predict short term rates will be over the next few years. The Fed has suggested it will raise rates three times this year, but markets are hedging for a fourth increase. If the plot confirms the hedge, we may see some upward pressure on rates.
After the meeting, Fed head Powell will hold his first press conference as Chairman. Markets will be keenly interested in what he has to say. Expectations are he’ll steer the same course charted by Janet Yellen. However, analysts will dissect his answers looking for change. They also will listen for his thoughts on the economy. Even an innocuous comment, as we discovered with his Congressional testimony, could create a market wave. I think the upside risk here is greater than the downside potential.
If the Fed doesn’t cause any waves, the rest of the week looks to be quiet. The Consumer Price Index last week confirmed that inflation remains tame. The headline rate printed at 2.2% while the core rate was 1.8%. The Feb jobs report showed wage inflation also pulled back. Both may give the Fed some breathing room to dismiss the fourth rate hike rumor, which took hold after the previous month’s heightened readings, and that could take some pressure off rates.