Mortgage rates changed little before Fed Day

At the end of last week, mortgage rates have gone up to reach their highest levels in 2 months. After a modest rally yesterday, rates today are little changed.

As is often the case when examining the evolution of overnight interest rates, we are talking about small movements overall. The average mortgage seeker would likely see the same “note rate” almost any day for over a month now. In the most extreme circumstances, the change would be limited to 0.125% (usually the smallest increment between different rate offers for most lenders). When the bond market fails to justify one-eighth of a percent, lenders make adjustments via upfront costs / credits. This way, the “effective rate” changes every day even if the “note rate” is not.

Some days wear increased risk larger movement – enough to push the average rate up or down to the next 0.125% increment. Tomorrow is one of them. At 2 p.m., the Fed releases its final policy announcement. While the Fed isn’t likely to announce a cut in its bond buying efforts just yet, it could introduce verbiage hinting at a cut in the near future. This is important because buying Fed bonds is one of the factors that helps keep rates as low as they are.

In addition to the announcement itself, the Fed will also release a quarterly update of the economic projections for each member of the Fed. The most popular component is the Fed Funds rate forecast (if you’ve heard of it “dots,” it is a reference to the dot plot format in which the Fed transmits rate expectations). Points have a strong reputation for causing short-term volatility across the entire interest rate spectrum (although points only refer to shorter-term rates).

Finally, Fed Chairman Powell will answer questions at a press conference 30 minutes after the announcement / points. If the announcement contains no revelation about the timing of future Fed policy changes, reporters will certainly insist on it at the press conference. This too has the potential to cause immediate volatility in the bond market. At the end of the line : rates have been stable recently, but tomorrow brings greater risks.

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