Concerns about technology companies and potential trade wars set the markets on a downward surge this week. Global equities fell Thursday and continued falling on Friday. Treasury and mortgage yields fell slightly, but the bond markets’ response was muted given that the Fed raised short-term interest rates on Wednesday while global growth remains strong.
Some highlights from the Fed’s press conference were:
- Expect at least two more rate hikes this year.
- Expect inflation to finally rise due to pro-business policy and lower corporate tax rates.
- Inflation to touch 1.9% and rise above its 2% target next year.
- Government spending (infrastructure spending) will stimulate the economy.
- The GDP forecast for 2018 is 2.7%, up from previous forecast of 2.5% back in December.
With the 10-year Treasury note moving down to 2.81% from a high of 2.89% earlier this week, we are open to floating rates as the equity markets are burdened by global trade war tensions and the potential for inflation. We would become even more bullish on bond yields moving lower should we see a move below 2.800% on the 10-year Treasury note.
Purchase season is gearing up and even with rates moving up, lenders remain hungry for new business and continue to offer competitive and historically low interest rates.