Rate update: Trade war is our headliner again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Trade war is our headliner again
May 072019
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last week’s two big ticket items, the Federal Reserve meeting and the jobs report, lived up to their billing. The Fed didn’t change policy, nor did the post-meeting announcement really make any waves. It was Fed head Powell, at his post-meeting press conference, who got things moving. He acknowledged that foreign economies look a little stronger than earlier in the year and was equivocal when asked whether the next rate move would be a cut or a hike. (Investors have been hoping for a cut.) Interest rates quickly bounced higher.

Then, we got the jobs report on Fri. The headline numbers were great: a solid beat on jobs created and the lowest unemployment rate in 50 years. However, wage growth was tepid, reinforcing concerns about falling inflation (which tends to depress rates). On top of that, the services sector report missed expectations. Interest rates edged down again, and it looked like we’d be riding the range a while longer.

This week set up to be rather quiet until Friday’s inflation report – until the Chinese pulled away from trade negotiations. Markets have been hopeful for a trade deal, so the president’s threat to impose new tariffs created waves of uncertainty. Investors responded to that by buying bonds, which pushed rates down.

So, where do we go from here? Given that multiple recent economic reports have agreed about receding inflation, it’s unlikely Friday’s Consumer Price Index is going to have much effect on rates. If the index surprisingly doesn’t agree with the other reports, rates may tick up a bit.

However, I suspect rates will rise or fall based on the trade talks. A further breakdown is bound to make investors nervous about a full blown trade war, leading to lower rates.

Rate update: Trade war vs inflation

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Trade war vs inflation
Jul 102018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

If you’ve been waiting to lock your mortgage rate, I have good news and bad news. The good news is that you haven’t lost any ground. Rates have been remarkably flat for the last few weeks. The bad news is that if you were hoping for lower rates, your hopes went unfulfilled.

Rates seem to be caught in a tug of war. On one side, we have trade war fears. Traders have been yo-yo-ing in response to constant headlines. Now, it’s quite possible that trading partners are using the headlines to manage their bargaining positions, but this leads to uncertainty, which exerts downward pressure on rates.

On the other side, we have inflation. The Federal Reserve’s favored inflation metric, the personal consumption expenditures index, finally rose to the Fed’s target of 2% in May. Analysts attribute the rise to the robust economy. Even though last Friday’s jobs report didn’t show elevated wage inflation, it did show that job growth remains strong. A strong labor market does exert pressure on wages in some parts of the economy even if the overall inflation rate remains tame.

So, which side will win? We could find out this week. This Thurs, we get the granddaddy of inflation reports, the Consumer Price Index (CPI). Analysts predict 2.3%, which is as high as the CPI has been since the Great Recession. A higher number could pull the rope in favor of inflation, leading to a quick jump in mortgage rates. However, a number that matches expectations probably will leave rates stuck in their current range for another couple weeks – waiting for the next headline.

Rate update: Inflation: fear or reality?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Inflation: fear or reality?
Feb 132018
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

After rising to the highest levels in over 4 years, interest rates are catching their breath, but I think it’s temporary. As we’ve discussed, the rapid rise seems to be predicated to a large extent on fears that inflation finally will come out of hibernation. Remember that inflation erodes the value of a currency. Thus, investors insist upon higher yields when they anticipate it.

I don’t think the fears are wholly irrational for reasons we’ve discussed, but the reality is we’ve seen very few signs of inflation so far. That could change tomorrow with the release of the Consumer Price Index. This isn’t the Fed’s preferred inflation metric, but being the granddaddy of inflation reports, it’s probably the one markets watch most keenly.

Unfortunately, I’m afraid the downside risk for this report is greater than the upside gain. By that, I mean if the reported value shows even a tenth of a percent increase, rates could quickly rise another 1/8%. If the reading is level or even slightly lower than last month, it should be positive for rates, but I don’t think they’re likely to fall very quickly. Markets seem convinced that inflation is out there hiding somewhere. I think it would take a few more months of continued tame inflation readings before markets will believe again that inflation is not a concern.

So, if you haven’t locked your interest rate, floating through tomorrow carries an outsized risk. If your outlook is a couple months into the future, there’s still hope. The longer inflation doesn’t materialize to validate market fears, the better the chances rates will find a ceiling and provide us with a bounce lower.