Mortgage Rundown: November 16th 2017

Hello everyone and welcome back to the Mortgage Rundown Today we are going to talk about the FOMC On November 1st the FOMC met and decided to leave interest rates unchanged

The Fed did forecast that they expect to raise rates in December The market is pricing in a 90 percent chance of a Fed increase next month In addition to the FOMC meeting was the announcement that Janet Yellen will be replaced as Fed Chair Jerome Powell was nominated as her replacement, but keep in mind that confirmations could take a month Does the Fed move interest rates at their meeting on December 13th if Janet Yellen is still at the helm? Is it possible that they still raise interest rates while the Fed chair is in the process of being replaced? Also, if Powell is confirmed before December 13th, does he raise rates at his first meeting? These are all important questions that must be considered over the next 30 days

Now in terms of the Fed possibly raising rates in December, how has that affected the yield curve? Will longer term rates such as mortgages move higher? Take a look at the following graph which shows the spread between the 2yr and 10yr Treasury, often referred to as the shape of the yield curve As you can see over the last 8+ years the spread has gone down and down, which means the yield curve is flattening Essentially it means you can borrow money for longer periods of time and the cost for borrowing for that longer period is coming down In the mortgage universe for example, the incentive to get a 30yr fixed loan versus an adjustable rate is more attractive now than it has ever been in the last 8 years What the yield curve also tells us is that the expectation that rates will keep rising is diminishing

While the market may expect the Fed to raise rates in December, the market also believes there aren’t a lot of rate increases next year and beyond In fact the market is only pricing in a 50% chance that the Fed raises rates twice next year In the coming weeks you should keep an eye on the following items: Inflation figures such as CPI and PCE which are the most watched figures by the Fed The nomination of Jerome Powell and replacement of Janet Yellen could shift the direction of the Fed 3 And lastly, keep an eye on the stock market Will investors reduce or increase stock positions near the end of the year as they plan their investments strategies for 2018? If you would like a more in-depth analysis, please visit our blog

Thanks for watching and have a great day

Source: Youtube

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