Ben Bernanke Suggests A Long Wait for Raised Rates

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Things haven’t been all that steady in the last week for mortgage rates; on Friday, August 5, they peaked at their highest levels in the post-Brexit era. But they didn’t stay there for too long. As of August 10, they’re back into the nice range that homebuyers have been enjoying for the last few months, averaging somewhere between 3.375 and 3.5 percent for 30 year fixed rates. Compare that with the all-time low rate that occurred during late 2012—3.125 to 3.25 percent—and things aren’t looking too bad at all.

A significant reason for the quick drop in the rates can be traced back to bond markets, as is often the case. Ted Rood, a senior loan officer at MB Financial Bank, explains.

“Bond markets rallied strongly today, in spite of abundant corporate bond supply and strength in equity markets,” he said. “Days like this defy logic, which is why predicting market moves is foolhardy. At any rate, we’re still locked in recent ranges, with no clear rate trend in sight. If you’re floating, and near closing, it’s a great day to lock. If you’re just starting your loan, discuss your risk tolerance and goals with your originator.”

Okay, so that didn’t necessarily explain anything in terms of reasoning. As he mentioned, rates don’t always follow logic. We can glean from last week’s spike, however, that rates are ready to move upward even as the ambiguous effects of Brexit loom.

The most relevant question is whether The Fed is ready to increase rates as well. Fed Chair Janet Yellen isn’t exactly showing her hand but we’ve got a prediction from the next best source: Former Chairman Ben Bernanke. He doesn’t see an increase in the near future.

“It has not been lost on Fed policymakers that the world looks significantly different in some ways than they thought just a few years ago, and that the degree of uncertainty about how the economy and policy will evolve may now be unusually high,” he wrote in his blog for the Brookings Institute. “With a shorter distance to travel to get to a neutral level of the funds rate, rate hikes are seen as less urgent even by those participants inclined to be hawkish.”

He noted as partial evidence for his theory that unemployment is below The Fed’s goals (good), stock market levels set new records (good…for the time being) and economic growth stayed growing at a slow pace (not great…but certainly not bad). If the body weren’t willing to raise the rates under the current circumstances, they must still be feeling queasy about the future shockwaves stemming from Brexit.

That may give you more time to dream of even lower rates. A more permanent upward swing is unlikely to come into effect until at least 2017.