Interest Rates, To Go Up or Down or BOTH!!

With the Federal Reserve Bank saying it will "freeze rates", there are other indicators that non Federal Reserve Rates may be allowed to increase.  Indeed, the Fed seems to want to stimulate inflation...better than deflation...and then the Government will be repaying all of this multi trillion dollar debt with "inflated dollars".  Doug Schulman, of Movement Mortgage has an interesting and informative commentary of interest rate trends.  (read below)   We credit him and thank him for his analysis. BBB  BootheGlobalPerspectives


Perhaps both!   Down, to allow inflation, and then up

Mortgage rates remain historically low as we enter September. The latest numbers from Freddie Mac show that the average for a 30-year fixed-rate mortgage is standing at 2.93%, relatively unchanged from last week. Freddie Mac economists noted this week that as the yield on the benchmark 10-year Treasury note increases, mortgage spreads are still declining which helps keep rates low. However, if Treasury yields continue to increase, it might be difficult for rates to stay this low much longer.

Why are Treasury note yields going up? The Federal Reserve’s recent announcement about inflation. Investors predicted that the Fed would change its stance on inflation at the group’s August meeting. The Fed did and will now adopt a policy where it allows inflation to run moderately past the target inflation rate for “a period of time” to try and spur inflation. Once the announcement was made, yields on long-term debt started to increase as investors moved away from long-term debt. Last week we saw the yield on the benchmark 10-year Treasury increase to 0.74%. Early Friday morning, the 10-year note was trading at 0.645%. 

Mortgage rates may also be affected by another proposal by the Federal Housing Finance Authority. After the 2008 crash, Fannie Mae and Freddie Mac were put under government conservatorship. Basically, the government took them over to keep them from financially crashing. In return, Fannie and Freddie have to pay the federal government back through their profit.

Recently, there has been a push by the government to release the government-sponsored enterprises (GSEs) from conservatorship. The only problem is, Fannie and Freddie don’t have enough capital to run independently from government support. So this week, the FHFA proposed a way to raise capital that would force the GSEs to raise their guaranty fees (g-fees). These fees are what Fannie and Freddie charge to guarantee payout. This potential rise in g-fees will likely be passed on to lenders and eventually consumers in the form of higher interest rates. 

Some very positive news this week came in the form of a better-than-expected jobs report from the Bureau of Labor Statistics. For the first time since March, the unemployment rate is below 10%. The report shows the unemployment rate in August at 8.4% with 1.4 million non-farm payroll jobs added. 

Early Friday morning trading saw Dow futures jump by more than 100 points. However, the S&P 500 stayed relatively flat with the Nasdaq being dragged down, surprisingly, by tech stocks. Apple was down 2.5% with Facebook, Amazon and Netflix also all showing declines. 

After hitting record closes Wednesday, markets were hit hard on Thursday with the release of private payroll data. Private payrolls increased by 428,000 jobs in July, but severely underperformed against the expectation of 1.17 million jobs added. The report from ADP showed that big business had the biggest gains. Companies with 500 or more employees added nearly 300,000 jobs in July. 

Of note: 
  • Weekly jobless claims totaled more than 880,000, according to the Labor Department.
  • Congressional Budget Office predicts U.S. federal deficit will surpass GDP in 2021
Ready to get started?

Now that you’re updated on what’s happening in our current market and your first thought is “I want to buy a home” or “I should probably refinance,” your first phone call should be to a loan officer to determine what you can afford and start the pre-approval process. Having an underwritten pre-approval means that you can make an offer on your next dream house with confidence, giving you a competitive edge over other homebuyers. 

And since dealing with a Movement Mortgage loan officer is entirely contactless, it’s a win-win. Find a local loan officer here or start your online application here.




The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.