Market Comment
Mortgage bond prices finished the week sharply lower which pushed rates higher. Rates were stable Monday as the data was in line with expectations. Durable goods orders rose 1.8%. The market became volatile Tuesday afternoon in response to comments from Fed officials. Dallas Fed President Kaplan said the Fed needs to raise rates sooner rather than later and the exact timing is not important. San Francisco Fed President Williams said he saw a March move as a real possibility. The PCE core inflation reading rose 0.4% versus the expected 0.2% increase which also pressure rates higher. Weekly jobless claims printed at 233K. Analysts expected claims at 245K. Q4 GDP Second Estimate was 1.9%. Analysts expected a reading of 2.1%. Mortgage interest rates finished the week worse by over a full discount point.
Will They or Won’t They? Several Fed officials warned of a rate hike last week possibly as soon as the Fed March 14/15 meeting. There was less than a 30% chance the beginning of the week of a March increase. That figure increased to in excess of 75% by the end of the week.
Many analysts point to the upcoming employment report as the only thing that will alter the Fed’s next move. Signs of continued employment strength or wage inflation will likely result in action from the Fed this month. Any indication that the recovery is wobbly could keep the Fed at bay for the time being.
Now is a great time to take advantage of still historically favorable rates to avoid future volatility.
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