Apr 102018

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By G. Steven Bray

Mortgage rates stayed in their very narrow range last week as the bond market weathered the wild swings in the stock market. Interest rates often benefit from big down days in equities, but the gyrations have become so routine that they’ve muted flight to quality bond buying that would benefit rates.

So, rates have budged little in about 2 months. What could change that?

We were watching last week’s jobs report as a potential catalyst. The jobs number was surprisingly weak, and wage growth was inline with expectations. Rates barely budged, probably because the weakness was attributed to weather.

This week we have two potential sources for upset, both on Wed. First is the Consumer Price Index. Markets have been poised for an uptick in inflation for months, which has kept some upward pressure on rates. Recent CPI reports have continued to show minimal inflation, but markets are anxious. A higher-than-expected reading on Wed could shoot rates higher and quickly.

The second potential source is the release of the Federal Reserve meeting minutes. The Fed verified that it’s on course to raise rates two more times this year, but some Fed watchers are convinced the Fed is secretly thinking three times. While the short-term rates the Fed controls don’t directly affect mortgage rates, the reason the Fed would add a rate hike – higher inflation or more robust economic growth – would add some lift to rates. Markets will be exercising their secret decoder rings to see if they can glean some hidden message in the minutes.

The risk for floating your rate is greatest Wed morning. If we don’t get any surprises, rates are liable to stay range-bound for the rest of the week.

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