Nov 282018

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By G. Steven Bray

After a rather quiet Thanksgiving week, bond markets that determine interest rates begin the Christmas countdown, well, quietly. Mortgage rates remain near the bottom of their recent range. It’s almost as if they’re waiting for something, but what could that be?

I think they’re staring at two events looming on the horizon. First up is next week’s jobs report. Recent reports have shown the economy is humming, and wages are rising. It’s the wage component of the report that may garner the most attention. Rising wages usually translate into inflation, and inflation is the enemy of low interest rates.

The second event is the Federal Reserve’s Dec meeting at which it’s expected to raise short term rates another quarter point. It may be counter-intuitive, but that could be a good thing for lower mortgage rates. Talk is growing louder that the Fed is hiking rates too quickly, and not just from the President. Remember that bond traders determine rates, and traders are people. If traders think Fed rate hikes are going to stifle the economy, they may push rates down in acticipation of a weaker economy regardless of what they’re spending on Christmas.

I’ll give you one other data point to watch. Oil prices have been on a tear recently – lower. The price of oil factors into the cost of so many goods that its collapse has taken some of the wind out of the sails of inflation hawks. I suspect rates will have a hard time rising much as long as oil prices remain down.

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