Rate update: It’s all about the Fed, or is it?

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By G. Steven Bray

Absent something totally unexpected, like a financial crisis that roils the world economy, it looks like the Federal Reserve will raise short term interest rates in Dec. Analysts expect a quarter percent increase, and bond markets have pretty much priced that amount into the yield on Treasury bonds.

That’s the backdrop for this week’s big economic events, specifically the jobs report on Fri and the European Central Bank meeting on Thurs. Markets expect another good jobs report, and I think only a contracting job market would sway the Fed to reconsider raising rates. Markets expect the ECB to announce additional measures to stimulate the European economies. I expect this will have little effect on US rates, but it’s interesting that the current policies of the ECB and the Fed are moving in opposite directions.

Mortgage rates could rise a little in the coming weeks as markets continue to react to expected Fed actions. However, markets soon will start looking beyond Dec’s rate hike, and future rate hikes depend on the growth prospects for the economy. Thus, it’s quite possible rates level off or even fall a little in the medium term unless economic data shows a new spark.