Houston's Rate Sheet

Rate Watch

Economic data took a back seat to last Tuesday's Fed meeting. The decision by the Federal Reserves’ Federal Open Market Committee (FOMC) to raise their key interest rate 25 basis points and the corresponding statement given to justify it, led to steadily rising rates throughout the week. And for the first time in 3 weeks, Freddie Mac's weekly survey produced a higher weekly average. The benchmark 30-year fixed rate mortgage (FRM) averaged 6.35 percent, up from the previous week's average of 6.32 percent.

Shorter term programs were impacted even more substantially. Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 6.02 percent up from the previous week when it averaged 5.96 percent and one-year Treasury-indexed ARMs increased 10 basis points to 5.51 percent. Typically, the shorter the term, the more impact a Fed hike will have on the rate.

As I posted last week, the biggest impact would be felt from the statement that came out of the Fed meeting. Prior to the meeting, investors believed that the Fed's rate hike streak might be coming to an end. The Fed has raised their Federal Fund rate in 15 consecutive meetings of the FOMC. After the meeting, the Fed released a statement that was identical to the statement released in February. The statement reaffirmed that more rate hikes might be needed to offset inflation. As a result, investors immediately reassessed their expectations and bid down the price of bonds which led to higher and higher rates throughout the week. Bond prices and yields/interest rates move in opposite directions.

The March Employment Report will be released on Friday. As usual, this will be the biggest economic data of the month. The Employment report details the number of new jobs created and the Unemployment Rate. The strength of the labor market is the most popular indicator of a healthy, vibrant economy. Economists are currently predicting that we will add 200,000 new jobs. If the report comes in above or below this number, then it could have a big impact on interest rates. So lock rates prior to its release, you probably don’t want to chance it.

In the meantime, the economic calendar is pretty light. The ISM Manufacturing Index will be released today. The Institute for Supply Management surveys nearly 400 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. This is one of the most comprehensive manufacturing reports, and it can have a big impact depending on the results.

Between Monday and Friday don’t expect much activity. However, their might be some lagging momentum that pushes rates even higher. Borrowers should lock rates at their earliest convenience.

posted by Vincent Biondillo @ 12:08 PM