There were no surprises this mid-week out of the Federal Open Market Committee (FOMC). As expected, the FOMC raised short-term interest rates (aka the Federal Funds Rate) by .25%. The Fed Funds Rate is now .75% to 1.00%. Fed Chair Janet Yellen’s dovish commentary was the buzz of this recent FOMC meeting, spurring a rally in U.S. Treasury and mortgage bonds. Prior to this meeting, it was generally expected that rates would be raised in response to the strong economy, and this is indeed what we saw. While Ms. Yellen did comment on improving economic conditions, the bond market was comforted by the Fed’s plans to raise interest rates incrementally over time. Prior to the FOMC meeting, the 10-year Treasury note which was trading over 2.600%. Post-meeting, it closed the week out at 2.500% on the button. Mortgage lenders adjusted pricing for the better toward the end of the week.
In other news, inflation remains under control while rising slightly, and housing starts hit a four month high, which is a sign of greater confidence in the U.S. economy.
With the FOMC meeting in the rearview mirror, we are cautiously optimistic that interest rates could drop a bit lower. We envision that the 10-year Treasury note may trade down to 2.25%, but we are also closely tracking rates as a move above 2.62% on the 10-year Treasury note could mean much higher interest rates for mortgages.