Mortgage Rates Will Keep Rising

The Fed met last week and they said they would keep the Fed Funds Rate near 0% through 2023 inflation be damned. The Fed believes GDP will grow by 6.5% this year and the unemployment rate will drop to 4.5%, and that inflation as measured by the PCE will be 2.4%, up from an earlier estimate of 1.8% this year. They believe/hope that inflation will drop next year to 2%.

And Chairman Powell refused to discuss inflation or take questions on inflation on Wednesday and this scared bond investors as they are left in the lurch. Even Barry Habib was lost for words last Thursday morning and he is fearful that rates will keep soaring too.

Mark Grant, Chief Global Strategist for Fixed Income at B. Riley Financial is hoping the Fed will soon take action to put a lid on long-term rates as higher long-term rates impact housing and corporate borrowing too, both which will lead to slower economic growth. Mark is hoping that Treasury Secretary Yellen will have a “talk” with Powell soon to encourage the Fed to take action. However, she is an even bigger “Dove” than Powell is. So, I am not hopeful.

The 10-Year Treasury Bill yield has now eclipsed 2 ceilings of resistance this past week at 1.60% and 1.67% and ended last Friday at 1.73%. I fully expect the 10 Year yield will hit 1.97% in the coming days. This means mortgage rates will rise another ¼% at least. MBS Highway last week switched which bond coupon they follow from the 2% coupon to the 2.5% coupon. Why? Trading in the 2% coupon has really slowed which is another sign that mortgage rates will NOT be dropping any time soon. Barry and I both believe mortgage rates will continue to increase.