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Busy December on Tap: The Weekly Market Update

Interest Rates & Taxes
Interest Rates & Taxes

Interest Rates & Taxes

As we approach December, we can see that we are in for a busy month with regard to the economy. With the recovery continuing from the Hurricanes, the Federal Reserve Board’s Open Market Committee will also be meeting with the consensus pointing to another increase in short-term interest rates. Outside of major shocks, the only factor which seems like it has the potential to change the Fed’s mind would be a very weak employment report. This report is due out in early December.

Meanwhile, all eyes will be on Congress as they continue to hash out details of the tax reform proposals. There is an overwhelming amount of media stories streaming from this effort and for good reason. This effort to enact such a radical change will have a profound affect upon businesses and consumers. No industry seems to be more in the cross-hairs than real estate — one of the last remaining tax havens.

Just to make things more interesting, the markets will be watching reports from on-line and bricks and mortar retailers. Traditionally, Black Friday kicks off the buying frenzy for the holiday season. Sales made during this season will tell us much about the state of the economy moving into 2018. From there we will see speculation about how many times the Fed intends to raise rates in the coming year. They keep using the word “gradual,” but that word is too nebulous and won’t keep market analysts from speculating.

The Weekly Market Update

Rates were down slightly in the past week, with the survey being released one-day early because of Thanksgiving. For the week ending November 22, Freddie Mac announced that 30-year fixed rates fell to 3.92% from 3.95% the week before. The average for 15-year loans increased one tick to 3.32%. The average for five-year adjustables also increased one tick to 3.22%. A year ago, 30-year fixed rates averaged 4.03%, slightly higher than today.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "Rates dipped slightly in a short week leading up to the Thanksgiving holiday. The 10-year Treasury yield fell roughly 4 basis points, while 30-year fixed rates dropped 3 basis points to 3.92 percent. Rates on home loans continue to remain low."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

The Deed is Done: The Weekly Market Update

The Fed Speaks

The Fed Speaks

The Federal Reserve Board’s Open Market Committee met last week to consider raising short-term interest rates. As we approached the meeting, the consensus was that the Fed would move their Discount and Federal Funds Rate higher by one-quarter of one percent. The weaker than expected jobs report put a bit of doubt in some analysts’ minds; however, most were still expecting the increase to be approved.

Thus, no increase would have been somewhat of a surprise and an increase of more than one-quarter of a percent would have been a major surprise. Therefore, the fact that the Fed moved by one-quarter of one percent was seen as somewhat of a non-event. Just as importantly, their statement released at the conclusion of the meeting provided us clues as to what the members thought of the state of the economy. The statement lauded the progress of the economy and downgraded their forecast for inflation. They continue to espouse a gradual rise in rates and, in the fourth quarter, the Fed expects to start selling off some of the assets they have amassed in the past to help the economy.

Anytime we are focused upon actions by the Federal Reserve Board, we have to remind our readers which interest rates the Fed controls directly. The Federal Funds Rate and the Discount Rate are rates the Fed charges member banks and member banks charge each other for overnight funds to balance their sheets. Thus, when we indicated that these are short-term rates, they are very short term. In reaction, other short-term rates such as three- and six-month T-Bills are affected most directly. On the other side of the coin, long-term rates, such as home loans, can move in tandem or have a different reaction, especially if the markets feel that the Fed is staying ahead of any threat of inflation. Thus, an increase in interest rates for home loans are not guaranteed to follow suit, though certainly the Fed’s action last week does pose that possibility.

The Weekly Market Update

Rates were up slightly last week, remaining near their lowest levels of the year. For the week ending June 15, Freddie Mac announced that 30-year fixed rates rose two ticks to 3.91% from 3.89% the week before. The average for 15-year loans also rose slightly to 3.18%, and the average for five-year adjustables moved up to 3.15%. A year ago, 30-year fixed rates averaged 3.54%.

Attributed to Sean Becketti, chief economist, Freddie Mac -- "The rate on 30-year loans rose 2 basis points over the week to 3.91 percent. However, our survey was conducted before investors drove Treasury yields sharply lower in a reaction to the surprisingly weak CPI release. If that drop in yields sticks, rates on home loans are likely to follow in next week's survey."

Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.