MORTGAGE RATE COMMENTARY

Milwaukee Mortgage Rates and the Fed

Tweet

 

Mortgage Backed Securities are PLUS 9bps today.    

The Fed earlier this week came out with a statement following a two day meeting of the FOMC. The statement extended the time line for an increase of the Fed's overnight rate. This is the rate used by the central bank when lending to domestic institutions. They previously stated that it would stay at the current level until the end of 2013. The current statement pushes that date back to the end of 2014.

The Fed is signaling that we will have a prolonged slow growth story. It means the Fed does not see the government stepping in with new programs to stimulate the economy or help unemployment until after the election. Companies have learned to do more with less over the last few years and will see no need to expand. Company earnings have been adequate for the last two quarters. Without growth we will not see hiring or expansion. Those are the key elements missing and why the Fed says it will continue until 2014.

The Fed has not signaled that it will do more to purchase MBS. The have said they will continue to purchase MBS to keep interest rates low. Investors will look at this as an opportunity to put some risk on in the short term. They are able to borrow money at very cheap interest rates. That could cause a run higher in the equity markets. We will then either see a continuation or a reversal after Q1 earnings.

The bottom line is the Fed will keep rates low and we should be in a range of 3.75% and 4.75% for a 30 year fixed in 2012. The equity markets as a whole should not have a tremendous upside or downside after 12 months. We will see volatility in both directions during the year. When we look to ring in the New Year 2013, we will see we have only gotten a year older and nothing much has changed.