Mortgage rates are fairly stable, but volatility may increase

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After a sharp increase at the beginning of the year and significant improvements between April and mid-July, mortgage rates Was pretty flat More than a month. That’s definitely not bad considering how close they are to historic lows with 30-year fixed scenarios still below 3.0% at best.

Change is coming however, for better or for worse. The rates may indeed come down, but not for the reasons we would like to see. Any significant rate cut would require a worsening “outlook,” a term that is deliberately ambiguous here as it encompasses the outlook for the Fed’s covid, economics, and policy.

It will take time to get a clearer understanding of the covid worldview given the start of the new school year. Hence it will be also take time to understand how economic dynamics are affected by the covid outlook. If this is already not enough interdependence, the problem of potential shifts in the labor market due to the new school year arises (the theory is that a significant number of workers can return to the labor market, as their children return to full-time school for the first time. Once every more than a year ). And, of course, this domino in the labor market depends on keeping schools open, despite the fact that in some states covid is spreading at a record pace.

I’m not here to speculate about the course of the pandemic or the policy response. V the only goal here it is necessary to identify the risks and comment on the potential range of motion. To this end, we must also consider the lens through which the Federal Reserve considers these factors. We know that the Fed is looking for an opportunity to start phasing out asset purchases (the so-called “cut”).

It is safe to assume that if covid numbers had returned to June levels, the Fed would have announced the cut no later than September. Indeed it is yet opportunity, since the September Fed meeting is almost month away. But it is entirely possible that the next 29 days will cause enough concern about the economic outlook, and the Fed is still postponing its plans. How much worry will it take? Market participants have a good idea, but they are asking for clarification from Fed Chairman Powell. They expect to get another extra dose of clarity on Friday when Powell speaks (virtually) at the Fed’s annual Jackson Hole symposium.

Powell’s position has been fairly well researched, but the markets are nevertheless ready to budge a little if any noticeable shifts occur in this position. Most agree that this should not be the case, but defensive errors can occur in trading from time to time. In other words, bond buyers may be a little less aggressive until they confirm that Powell “doesn’t mind.” This means that it may be difficult for interest rates to drop significantly this week – at least until Friday noon. At this point, the potential for volatility will increase and remain elevated until early next week.

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