Mortgage Market Update 6-25-08
Posted on | June 25, 2008 | No Comments
As expected, the Federal Reserve did not change interest rates at their two day meeting which just ended. This brings to an end their consecutive streak of rate cuts that dates back to mid-September.
In announcing their decision to leave rates alone, the Fed expressed concern about inflation and inflation expectations, but made no hints of an imminent rise in rates, meaning that the likely scenario is for an “uneasy status quo” as the Fed juggles increasing inflationary pressures with an economy that is teetering just on this side of recession.
Stocks and bonds initially have sold off on the news. The markets were hoping that the Fed would signal that they might soon raise rates to help fight inflation. For stocks, higher energy costs are going to eat away at corporate profits, making stocks less attractive. At the same time, inflation is bad for bonds, which are fixed rate investments, because it takes away from the returns on those bonds.
News out on the economy so far this week has been bond-friendly, with consumer confidence dipping (again), durable goods orders being unchanged, new home sales coming in lower, as expected, and U.S. crude oil inventories increasing to their highest level in a while. I think the main focus of the markets this week is going to be the price of oil and inflation (watch for Friday’s report on Personal Consumption Expenditures, the Fed’s favorite inflation gauge – maybe it will come in better than expected and the Fed will be exonerated for not hinting about raising rates today).
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