The Fed Raised On December 19, 2018

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It happened; just like everyone was expecting – the Fed raised .25 and they softened their outlook going forward. Lots of market volatility post release but as we get into the presser things have calmed down. If the 10y yield can stay below that 2.82% level it will be a positive for mortgage rates moving forward. If there are any significant updates during the press conference with Fed Chairman Jerome Powell or post press conference we’ll certainly let you know.

The Fed

Just over 40 minutes pass the release the 10y yield is at 2.79%, Mortgage Backed Securities are slightly positive and stocks have dropped significantly from their intra-day highs. Moving forward it will be interesting to see how the bond market and mortgage rates to the hike, press release and press conference. Here are the general updates from the initial press-release:

NEWS FEED:

FED SETS INTEREST RATE ON EXCESS RESERVES AT 2.40 PERCENT, WIDENING THE SPREAD TO 10 BASIS POINTS BELOW TOP OF FED FUNDS TARGET RATE

FED SAYS INFLATION NEAR TARGET WITH EXPECTATIONS LITTLE CHANGED

FED CHANGES LANGUAGE SLIGHTLY, NOW SAYS EXPECTS ‘SOME’ FURTHER GRADUAL INCREASES IN FED FUNDS RATE WILL BE CONSISTENT WITH SUSTAINED ECONOMIC EXPANSION, STRONG JOBS MARKET AND INFLATION OBJECTIVE

FED LOWERS ESTIMATE OF LONG-RUN FED FUNDS RATE TO 2.8 PCT FROM 3.1 PCT PREVIOUSLY, WITH RATES SEEN HALTING AT 3.1 PCT IN 2020 VS 3.4 PCT IN PREVIOUS PROJECTION

FED SAYS ECONOMY, LABOR MARKET REMAIN STRONG BUT EXPECTS GROWTH TO SLOW TO 2.3 PCT IN 2019 VS 3.0 PCT THIS YEAR, INFLATION WEAKER AT 1.9 PCT

FED RAISES TARGET INTEREST RATE TO 2.25-2.50 PCT, REDUCES EXPECTED HIKES FOR 2019 TO TWO FROM THREE

FED SEES SLIGHTLY LOWER ECONOMIC GROWTH AND INFLATION IN 2019 COMPARED WITH SEPTEMBER PROJECTIONS

MEDIAN FORECAST OF FED POLICYMAKERS IS FOR A TOTAL OF TWO RATE HIKES IN 2019, ONE IN 2020

MEDIAN VIEW OF APPROPRIATE FEDERAL FUNDS RATE AT END-2019 2.875 PCT (PREV 3.125 PCT): END-2020 3.125 PCT (PREV 3.375 PCT); END-2021 3.125 (PREV 3.375); LONGER-RUN 2.750 PCT (PREV 3.000 PCT) – FED PROJECTIONS

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