Last Week in Review:
Rates hit seven-year highs midweek on the heels of a confusing Fed message.
Our Federal Reserve has a dual mandate – to maintain price stability (inflation) and maximum employment. They also have a 3rd “unstated” mandate, which is to maintain market calm.
This past week, the Fed came up a bit short on that “unstated” mandate and created quite a bit of confusion and market turmoil midweek upon releasing the Minutes from the Sept 26th Fed meeting.
In that meeting we learned there is a group of “hawkish” Fed Members that want to hike the Fed Funds Rate more aggressively into 2019. At the same time, there were other Fed members who think the current Fed Funds Rates is “about right” – meaning no more hikes for now. The Fed talking out of both sides of their mouth was a source of confusion for the markets and home loan rates.
Adding to the confusion is the Fed’s very own inflation forecast which suggests inflation will remain close to current levels through 2021. If we recall the Fed mandate to maintain price stability, one could argue there is no need to raise the Fed Funds Rate if inflation is not rising.
Food for thought – If the Fed’s modest inflation forecast comes to pass, we will likely see home loan rates remain near historically attractive levels.