What The Fed Had To Say
The Fed did not hike (as expected) and expressed some concerns about the economy. They announced a “measured” approach to future rate hikes and a continuation of the unwinding of their balance sheet. They also dropped some of the previous language about the health of the economy which was a surprise. For more on what the Fed had to say scroll down to the bottom. They voted unanimously to hold their policy rate between 2.25% and 2.50%.
The Market Reaction:
The market was very volatile just after the announcement (as it usually is). Mortgage Backed Securities were positive and Treasuries were mixed. Lot’s of repositioning happens after the announcement so some of the initial moves are not always sustained. As I previously mentioned in another post; the effects of today’s announcement in the bond market may take a few days to be full realized. It’s important to keep an eye on it as well as what analyst are saying to avoid being caught off guard by sudden moves.
Why This Is Important To Mortgage Rates
This is important to mortgage rates because what the Fed says about the economy affects the Mortgage Backed Securities market. The announcement was “dovish” and acknowledged that there are some headwinds for the economy right now. We’ll have to see if this is “good” or “bad” for mortgage rates:
The impact to mortgage rates could be a net positive; a slowing economy and a concerned Fed is usually a good thing for mortgage rates.
Some investors feel that one of the reasons the economy was slowing was due to the Fed rate hikes. It now appears this may be less of a factor going forward. If so some investors may feel the economy will start growing again and a strong/growing economy can be a negative for mortgage rates. Stocks were up 1.5% post announcement.
Expectations For Future Rate Hikes
It appears the Fed is going to pause with future hikes; that may change in the coming months if economic activity picks up. Overall this was a dovish announcement; we’ll have to see how the press conference goes.
The Fed Meeting Schedule For 2019
Here is the full schedule for the Fed in 2019
- January 2019: 29th and 30th
- March 2019: 19th and 20th
- April/May 2019: 30th and 1st
- June 2019: 18th and 19th
- July 2019: 30th and 31st
- September 2019: 17th and 18th
- October 2019: 29th and 30th
- December 2019: 10th and 11th
In previous posts I mentioned the Fed dot-plot being something to keep an eye on. It appears the next issuance of the dot-plot will not be until March. Stay tuned!
Fed Chairman Powell’s Presser
Here are some notable points from the Chairman’s Presser which comes after the press release:
- Oversea’s growth has slowed; uncertainty has increased (good for mortgage rates)
- Re-affirms that policies are data dependent
- Case for raising rates has weakened
- Working on finalizing balance sheet plans
- Economy should make back most of the shutdown effect next quarter
Post Presser Update On Mortgage-Backed Securities
Mortgage Backed Securities continued to rally post presser as the FNMA 4.00 moved to 102.11 and the 10y yield dipped below 2.70%.
Fed Meeting Press Release From Reuters
FED KEEPS TARGET INTEREST RATE AT 2.25-2.50 PCT, SAYS WILL BE PATIENT AS IT DETERMINES WHAT FUTURE ADJUSTMENTS TO RATES MIGHT BE APPROPRIATE
FED SAYS WILL CONTINUE TO UNWIND BALANCE SHEET BY FORGOING REINVESTMENT OF UP TO $50 BLN IN MATURING SECURITIES EACH MONTH
FED SAYS IT IS PREPARED TO ADJUST ANY DETAILS FOR COMPLETING BALANCE SHEET NORMALIZATION IN LIGHT OF ECONOMIC AND FINANCIAL DEVELOPMENTS
FED STATEMENT DROPS LANGUAGE USED IN PRIOR STATEMENT THAT HAD SAID COMMITTEE JUDGED SOME FURTHER GRADUAL INCREASES IN FED FUNDS RATE WOULD BE APPROPRIATE
FED STATEMENT DROPS LANGUAGE USED IN PRIOR STATEMENT THAT HAD SAID RISKS TO THE ECONOMIC OUTLOOK WERE ROUGHLY BALANCED
FED SAYS MARKET-BASED MEASURES OF INFLATION COMPENSATION HAVE MOVED LOWER BUT SURVEY-BASED MEASURES OF INFLATION EXPECTATIONS ARE LITTLE CHANGED