Stocks Slammed As Fed Set To Raise Rates In March
Stocks were slammed yesterday with a hotter than expected CPI report. Another contributing factor is the comment by a Federal Reserve board member on the need for more rapid increases in short-term interest rates as well as a pickup in the pace of quantitative tightening. However, a Bloomberg report late in the day asserted the Fed is not going to rush to raise rates. The President of the ECB has also talked down rapid rate hikes which calmed markets (for the moment). Expect this type of back-and-forth rhetoric as the Fed weighs how best to raise interest rates without creating an economic slowdown. This will not be an easy task.
The consumer confidence index was lower, which supports the notion of measured hikes over rapid ones. Confidence can work both as a stimulant and depressant, so fading confidence should assist in easing inflation in the next few months. The old saying may apply here that “the cure for high prices is high prices.” Should confidence move lower, both consumers and businesses will be less eager to spend money on goods and services. It may take some time for inflation to subside and with the highest readings in 40 years. The Fed is being forced to act on inflation; especially after getting it so wrong a few months earlier.
The 10-year Treasury is now over 2.000%. The same financial pundits who, a short time ago, said we would never see Treasury bonds at this level (something we have been mindful of for some time) have now expressed those rates may go much higher. From a technical standpoint, it is important to watch yields as should the 10-year Treasury bond approach 2.150%. Rates could go much higher. Also, be mindful of the yield curve and what it is forecasting. A flattening yield curve supports an economic slowdown whereas a sloping yield curve means the Fed is getting it right on tightening.
Insignia Mortgage has very aggressive jumbo interest rates. The lenders we work with are holding the line on raising interest rates. There is a limit to how long these institutions are willing to hold interest rates. It is now time for those on the fence to apply for a mortgage- as rates are much more likely to go up than go down in the near term. It is important to remember the Fed has played a big role in keeping interest rates artificially low and that policy is now reversing.
Note: Commentary was written prior to increased concerns on Ukraine-Russia conflict which sent bond yields lower
