Marketweek 06/25/07: Fed Poised to Keep Inflation in Check
Fixed and ARM rates are about even this week after a wild six week ride – during this time rates rose about .75%, then corrected about .25%. Still a .5% increase is enough to make people nervous. In this environment, I am locking all clients as offers go out, and until we draw docs, I can lower rates if markets drop. Below is some background on what’s driving the current market movements.The main reason rates have risen is that US Treasury bond yields, which are a key benchmark for mortgage rates, are finally taking the proper signals from the Fed. The Fed tries to keep their manually-adjusted Fed Funds Rate to where money is priced such that it neither over-stimulates nor restrains the economy. The rest of the rate complex is openly traded and follows this lead. For almost 2 years up until May, rate markets ignored the Fed. Now they’re finally listening.
We’ll find out if they’ll continue listening after the Fed announces it’s latest Fed Funds Rate decision on Thursday. They shouldn’t hike rates but, to keep that middle ground they seek, they have to tell the markets which threat they think is bigger: inflation or recession. Consumer and Producer inflation for May was benign, but the “core” readings on consumer inflation exclude energy and food prices, which many argue hides the true level of inflation. Then, on the recessionary side, you’ve got today’s existing home sales for May which were the weakest in four years–this plus a new round of subprime troubles can hit the consumer hard. The Fed’s interpretation of this data will provide the answer. My bet is that they will err on the side of inflation as the bigger threat and try to get markets to trade at or slightly above current levels.
Conforming ($200,000 – $417,000) – NO POINTS
30 Year: 6.625% (6.765% APR)
10/1 ARM: 6.875% (7.015% APR)
5/1 ARM: 6.5% (6.65% APR)
Jumbo ($417,001 – $650,000) – NO POINTS
30 Year: 6.875% (7.015% APR)
10/1 ARM: 6.875% (7.015% APR)
5/1 ARM: 6.5% (6.65% APR)