The poor jobs report may be the catalyst for the Federal Reserve to stop raising interest rates and give the mortgage industry a chance to catch its breath and slow down a bit. The marketplace has been in turmoil as the Federal Reserve has been raising interest rates putting pressure on new borrowers and those in Adjustable Rate Loans (ARMs).
Since the Fed controls short term rates, a pause by the Fed means that adjustable loans will benefit the most from their likely neutral stance on rates. However, fixed rates might or might not see a benefit even though it is widely believed the Fed will pause raising rates on Tuesday.
Fixed rates are based on investors that trade Mortgage Backed Securities, it is these investors’ perception of inflation that controls the direction of fixed rate mortgages. These same investors will be more interested in the Fed’s statement than the pause in rate increases. If the Fed, in its statement, indicates that inflation is anything but under control fixed rates may in fact increase even though short term rates are held steady. Although we believe this scenario remote, it is possible and has occurred several times in recent history.
The bottom line - In our opinion a neutral statement by the Fed in conjunction with a pause in rate hikes will likely stabilize or slightly improve the market, Although unlikely, any indications that a pause will be temporary or not sustainable will likely result in higher rates. via OriginatorTimes.com.
