No recommendation until tomorrow. All eyes are on the Federal
Reserve Open Market Committee today. At 2:15PM (EDT), 11:15 (PDT),
they will release their interest rate decision and statement. The
fixed income securities market believe there is a 43%
chance that the Fed will RAISE rates, to stifle inflation, in August
and that there is a 61% chance that the hike will come in November.
The eyes will be on the Fed's commentary, though:
"We expect the Fed to keep the funds rate at 2% today but to shift to a
more hawkish statement by placing more emphasis on inflation over
growth risks," strategists at Credit Suisse wrote in a research report.
"The Fed will likely use this meeting as an opportunity to set the
stage for a potential rate rise in August."
If the Fed signals that rates could rise as early as August, expect
Miami mortgage rates to jump .25% higher, from today's 6.375% 30 year fixed
rate, over the next few weeks. If the Fed signals rate hikes are
"possible" as a way to fight inflation, expect rates to stay level
through in July (6.25% to 6.5%). Finally, if the Fed shifts back to
its anti-recessionary talk, we could see rates drop down to 6%.
As you can see, there are a lot of "ifs". This is why today's Fed
commentary is all important. The Fed's ambiguity has traders convinced
that higher rates are a foregone conclusion. Here's the silver lining
hidden in this dark cloud; mortgage rates are equal to what they were in July, 2007. The Fed Funds rate was at 5.25%, then.
Today, the Fed funds rate is at 2.25%. What that means is that
mortgage rates SHOULD be able to withstand some 5-6 rate hikes and stay
under 7%.
Alas, markets are discounting mechanisms. We still think there is a lot of risk to higher mortgage rates until the commodities bubble bursts.
