Charges Shifting Greater Forward of Fed
Mortgage rates had a great week last week and were finally nearing their lowest levels since March. One of the main motivations was the market phenomenon known as the “short squeeze”. In not so many words, this means that too many traders were betting higher than they were all right, so the market corrected itself with a quick move back toward lower prices.
The problem with short squeeze is that it doesn’t provide a good foundation for sustained momentum when interest rates are low – a trend that has proven correct so far this week. In other words, last week’s pro-interest rate trend has taken its course and markets are now preparing for tomorrow’s Fed monetary policy announcement. In today’s case, that was a moderate move back to higher rates.
While the Fed is not yet ready to adjust its policy rate or change its bond-buying schedule, it could express the likelihood of this prospect in the future. There are several ways to do this, from the announcement itself to the press conference with Fed Chairman Powell that takes place 30 minutes after the announcement at 2 p.m. ET. There’s also the updated economic forecast, which includes Fed members’ individual views on when the first rate hike will come (as well as rates at the end of the next few years).
Bonds (which drive interest rates) tend to be more volatile to these Fed meetings (the 4 out of 8 that include the economic outlook). There’s no way of knowing whether that reaction will be good or bad for rates – only that tomorrow afternoon increases the likelihood of a major move.