Fed Funds Rate at 5.25%
As most of you have seen already, the Fed raised interest rates again for the 17th straight time. The Fed Funds rate is now at 5.25%. Most of the action in the bond market immediately after the announcement pointed towards the belief that the Fed would pause at 5.25%. I think later in the day though the bond market started pricing in another 25 bps increase at either of the next two, but not both, fed meetings between now and September.
The effect of the increase by the Fed on mortgage rates should be noticeable tomorrow or by next week. I would expect to see mortgage rates above 7% relatively soon. Interestingly, the yield curve is still slightly inverted. In other words, the yield on the two year note is a little higher than the yield on the ten year note, or about 5.26% for the two year compared to 5.23% for the ten year. If the yield curve returns to its normal slope, then the ten year note would be priced to yield about 6.1% to 6.2%, all else being equal. In that case, mortgage rates would probably be in the 7.75% to 8.00% range. In short, even if the Fed pauses indefinitely, I think there is a good chance long bond rates will continue to rise, which will in turn push up mortgage rates.
The effect of the increase by the Fed on mortgage rates should be noticeable tomorrow or by next week. I would expect to see mortgage rates above 7% relatively soon. Interestingly, the yield curve is still slightly inverted. In other words, the yield on the two year note is a little higher than the yield on the ten year note, or about 5.26% for the two year compared to 5.23% for the ten year. If the yield curve returns to its normal slope, then the ten year note would be priced to yield about 6.1% to 6.2%, all else being equal. In that case, mortgage rates would probably be in the 7.75% to 8.00% range. In short, even if the Fed pauses indefinitely, I think there is a good chance long bond rates will continue to rise, which will in turn push up mortgage rates.
posted by Little_Silvered at 7:51 PM
4 Comments:
Jon Corzine has managed to do in 3 days what the fed has been set out to do in 16 mos .! Jon has brough about the colapse of the housing market single handed !If any of you own ...sell now NO ONE will want to live in this state after this debacle .For a Gov to shut down a state so dependent on toureism as N J is insane !. We are now at the mercy of a madman I am gettin out as soon as possibly ,I see very dire times ahead for investors and homeowners alike . I can't even think what business would ever want to move here....for what TAX TAX and higher TAX...and if you don't like it ....I'll shut you down !
It's easy to blame Corzine, but he's not the droid you're looking for. http://www.bluejersey.net/userDiary.do;jsessionid=CD0B25DC8A1A85955C866C9E875FE932?personId=79\
NJ needs to boost revenues while cutting costs. Homeowners cannot expect to further support the burden, so a sales tax boost is the next step.
What the Democratic assembly fear most is Corzine dismantling the bloated bureaucracy and estranging Labor votes. Corzine's not a product of the NJ Democratic machine; he's going to try to hold onto power without the usual support structure.
Much as it pains me to say it (as a Democrat), Corzine is doing the responsible thing. And, since homeowners are already, in general, overburdened by property taxes, a regressive tax seems a sensible alternative, especially since necessities (food, clothing, rent) are not subject to sales tax.
To those who read only the headlines, or listen to radio or TV news, I suggest you go here for a little more on the intra-party split. Corzine is right--he's trying to do for NJ what Clinton did for the US budget. If he succeeds, the advantages NJ already has in place will restore the state's lustre and fiscal good health.
http://www.bluejersey.net/frontPage.do
Jamey from Bergen
Why is nothing being said about how the Democrats are keeping the Republicans out of their budget meetings, while completely ignoring the Republican proposal to cut $2.2 billion from the budget?
Why, indeed. I've looked over the GOP proposals. They wield a heavy ax on prudent social services, urban enterprise zones, environmental cleanup along the Passaic River (and the GOP couldn't help itself--it went after the tiny annual stem cell research seed money expenditure, conflating the annual outlay with the entire life-of-program cost). Many of the ideas in the GOP plan are part of the Democratic caucus' plan-- But the GOP plan is all best-case-scenario stuff.
That said, how much worse could things get if the deadlocked Democrats let the loyal opposition have a voice in the proceedings???
Jamey
Post a Comment
<< Home