Fed Does Its Best Not To Nudge Rates on Eve of Election


Last week (10/26) we suggested that Wednesday could bring a significant shakeup to mortgage rates, as the Federal Reserve was scheduled to make an announcement. Naturally, things worked in the opposite of what trends would suggest. Namely, rates spiked suddenly after we spoke last week and instead eased back down alongside the Fed’s announcement.

Go figure.

Most assumed upward movement following the Fed’s announcement because most assumed the message would say one of two things: A) an immediate rise in the Federal interest rate or B) strong hints confirming said rate would increase during December.

Neither came. The fact that the Federal rate didn’t get a quick shakeup is not a surprise. However, most expected stronger hints of holiday movement over at The Fed. After all, the Board’s last meeting (in September) involved several dissenting votes on Chairman Yellen and co.’s decision to stay the course.

So is there a chance that The Fed will pass on a December raise, and wait until 2017?

Luke Bartholomew, fixed income investment manager at Aberdeen Asset Management, says the subtle language in Wednesday’s announcement shouldn’t fool anyone into thinking the low Federal rate will continue.

“There’s the small matter of the US election to navigate in between now and the US Federal Reserve’s next meeting,” he noted to CNBC. “That’s why the statement carries enough room for the Fed to wriggle out come December if economic and financial conditions change.”

Yes, we had heard something about this election.

Of course, mortgage rates took it upon themselves to show four days of rise leading up to The Fed’s announcement this week. That growth withdrew following the conservative language of the statement. Currently, 30-year fixed rates are sitting in the 3.625 percent range that we’re getting used to.

What could change things during the week? Well, there’s a jobs report due on Friday…and then there’s that election thing. Next Tuesday’s day out will have a dramatic impact on financial policy (and therefore mortgage policy). Make sure you take the chance to count your voice among the many making those decisions next week.

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