It's December 16th - not what you would typically consider as a very important day in December, unless you are anxiously awaiting the Fed's Interest Rate decision. Today at around 2:00 EST, we will get the news about whether they have decided to start raising the Fed Funds Rate or not. Traders have been preparing for a raise this week by selling the FNMA benchmark bond and pushing it down 48 basis points on Monday followed by another 12 basis points yesterday (finishing 19 basis points off its low) and it is currently down 12 basis points. I don't expect a lot of fluctuation in price before the announcement. I'm also not sure that a raise is fully priced in which means that there may be more selling if the Fed announces they are raising rates.
We had more data yesterday and today for the Fed to consider when they make their decision (I wish I were a fly on the wall in that meeting so that I can hear who's saying what and how strong their convictions are along with what they are paying the closest attention to). Yesterday, the YOY CPI data, ex-food and energy, came in at 2% (the Fed's target, though this is just one of the inflation measures they use). Today, November Building Permits were 1.289mil, much higher than the 1.150mil expected. Housing starts were also much better than expected at 1.173mil vs. expectations of 1.14mil. November Industrial Production was -0.06 vs. expectations of +.1 and Capacity Utilization was 77% vs. expectations of 77.5%. The fact that we have a lot of headroom in terms of capacity means that inflation is likely not a big deal from the manufacturing side for at least a little while. We know from the various manufacturing indices that manufacturing is mostly week and this morning's number confirms this; however, we also know that our economy is about 2/3 service and 1/3 manufacturing and with strong readings from the service sector, the Fed has more reason to raise rates.
From a technical standpoint, the first support level is at 102.73 (current bond price is 102.80) and the RSI is a non-factor at this point. I might also add that the GNMA bond is underperforming the FNMA as it is down 39 basis points. Like I said earlier, I'm not sure if a Fed increase is fully priced in, if it is, we may not see much (or any) sell off after the announcement; it is possible that we could see some buying if traders are expecting a .25% increase and the Fed only raises rates by .125%. I'm not predicting anything, I'm just letting you know some of the possibilities. I've been saying to lock for several days in advance of decision day today. I still think there is more benefit to locking and removing the downside risk than I do to floating in the hopes of some price improvement. I'd love to get your thoughts - please feel free to comment below. Contact me if I can help with anything. When it comes to interest rates, no one lender has the best rates every single day and the most important thing regarding interest rates is to work with a lender that has a good idea of when to lock because understanding when to lock is more important than using a lender who claims to have the lowest rates. Of course, there are many other things that come into play relative to getting a mortgage such as the overall costs which include opportunity costs - these are dependent on how the loan is structured. I can be reached at 801-853-8720 or 702-812-1214. Make it a great day.