With the new Fed transparency, these rate hikes are telegraphed well in advance now and priced in by the market. Free enterprise is working – the competition between Chase, Wells Fargo, and Bank of America is keeping rates in check. BofA is quoting 3.875% and no points for 30-year jumbos today – and we’ve had three Fed hikes this year (doubling from 0.75% to 1.5% today)!
Mortgage rates fell fairly quickly this afternoon following the Federal Reserves updated economic projections. While it is indeed true that the Fed “raised rates” this afternoon, there are two reasons that doesn’t matter.
First of all, the rate the Fed adjusts (aptly named, the Fed Funds Rate), governs only the shortest-time frames (overnight loans among big banks). Although its effects radiate to longer-term debt like mortgages, the two are far from joined at the hip. Short term rates often move one direction while long term rates move another.
More importantly, EVERYONE responsible for trading the bonds that govern interest rates (and I do mean every last person without a single exception) was well aware that the Fed would be hiking rates today. No Fed rate hike has been better telegraphed during this cycle.
When bond traders know what’s going to happen in the future, they’ll trade accordingly as soon as possible. That means rates had long since adjusted to today’s rate hike–so much so that the hike itself was a non-event. Again, it was the update economic projections that helped rates move lower this afternoon. Fed Chair Yellen’s press conference played a major role as well.
Even before the Fed news came out, a weaker reading on an important inflation report helped bond markets get into positive territory on the day. The net effect of the Fed and the economic data was a moderately quick move back to last week’s low rates.
Loan Originator Perspective:
Bonds are rallying following the Fed announcement today and weaker inflation data. As of 4pm eastern, only a few lenders have passed along any of the gains. So, I favor floating overnight and evaluate pricing tomorrow. Hopefully this rally can continue.