An estimated $2 trillion has been lost in the U.S. market alone in recent weeks, $5 trillion globally. That’s a tremendous anti-wealth effect a kind of anti-stimulus -set to hit around the world economies all at the same time. As smart as they might be, Fed officials don’t know what will happen next. Most traders are betting interest rates will be held at record lows longer. However, the Fed has not confirmed what they will do.
We are in a conundrum we have seen before. If the Fed tightens policy (raises rates) with slowing global growth, falling inflation, and a flight to the U.S. dollar, the more those long-term inflation expectations could drop dragging yields with them.
It’s good to remember that all the fed does is set a targeted extremely short-term, overnight interest rate that most impacts bank’s overnight lending dealing directly with the central bank. The longer term interest rates that set most mortgage rates is different, it is affected by global demand and what the market thinks inflation will be over a longer time horizon. If inflation will be higher this can set a demand for a higher yield on longer-term securities (mortgage rates).
We are carefully watching what rates will be doing however it’s in the coming month. We look forward to helping with your specific scenario. What we know right now is rates are still great in the low 4’s for 30 year fixed for most loan programs and in low to mid three’s for 15-year programs.
Courtesy of Katie Rice, Guild Mortgage