Federal Reserve Rates

Have you heard references to the Federal Reserve or "the Fed" in the news? These reports usually pertain to the Fed's raising or lowering of interest rates. The impacts of a rate decision can vary. Here are a few things to remember:

• The Fed sets target rates for bank-to-bank and Fed-to-bank loans.
• The Fed does not directly control fixed mortgage rates. In fact, fixed mortgage rates can change well in advance as the market anticipates any adjustments.
• The prime rate is directly influenced by Fed moves. This rate is often used as the benchmark for interest charged on credit cards, auto loans and Home Equity Lines of Credit (HELOCs).

There's talk that the Fed may raise rates before the end of the year. That may make this a good time to "lock in" a low rate on a purchase if you’re so inclined. Existing owners may want to consider refinancing or combining adjustable rate loans like HELOCs or even consumer debt into one low fixed rate. Consolidating debt is not for everyone, but talk with your local lender to decide what is best for you.

Happy Investing!

Today's blog courtesy of Cheryl Taylor, American Pacific Lending

Market Commentary

08.07.2015

Mortgages declined this week on comments from Atlanta Fed Chairman Dennis Lockhart, although weak earnings reports, and trades’ confidence that the Fed rate hikes will be slow, mitigated some of the sell-off in mortgages.

The bond market got a bit of a wake-up call on Tuesday when Atlanta Fed Chairman Dennis Lockhart said regarding Fed rate hikes that there was a “high bar right now to not act, speaking for myself.” Although he clearly qualified that he was just speaking of his viewpoint, not other members of the FOMC, the bond and mortgage markets quickly turned downward raising yields. Chairman Lockhart is widely regarded as a centrist so his comments were taken by investors and traders as a signal that there is a significant chance of the Fed tightening in September. As the week progressed there were several economic releases, but none of them were particularly out of line with expectations. Thursday’s weak earnings reports for companies led to downturn in the equities markets with bond and mortgages benefiting as investors moved to a bit more security. Currently based on the effective fed funds rate, traders are pricing a 56 percent probability of a September rate hike.

Economic Indicators that beat expectations included: Personal Income at 0.4% vs estimates of 0.3%, Personal Spending at 0.2% vs estimates of 0.2%, Markit US manufacturing PMI at 53.8 vs estimates of 53.8, Factory Orders at 1.8% vs estimates of 1.8%, Initial Jobless Claims at 270K vs estimates of 272K, Manufacturing Payrolls at 15K vs estimates of 5K, Unemployment Rate at 5.3% vs estimates of 5.3%, Average Hourly Earnings (MOM) at 3.4% vs estimates of 3.2%, and Underemployment Rate at 10.4% vs estimates of 10.5%. Economic Indicators that missed expectations included: Construction Spending at 0.1% vs estimates of 0.6%, ISM Price Paid at 44.0 vs estimates of 49.0, ADP Employment Change at 185K vs estimates of 215K, Trade Balance at -$43.84B vs estimates of -$44.00B, Continuing Claims at 2255 vs estimates of 2249, Nonfarm Payrolls at 215K vs estimates of 225K, and Average Hourly Earnings (YOY) at 2.1% vs estimates of 2.3%.

Happy Investing!

Thanks to Sarah Riley, Caliber Home Loans for this blog post.