Last Week in Review: The Fed is All Talk and No Action
This past week long-term interest rates still continue to hover at multi-month lows after the Federal Reserve maintained their position with interest rates and their bond-buying program. Let’s break down what the Fed said and what to look for in the weeks ahead.
“Until substantial further progress has been made”
This may be the most important line of the Fed Monetary Policy Statement.
The Federal Reserve has a dual mandate to maintain price stability and promote maximum employment. Here the Fed is clearly saying they need to see “substantial” progress towards this dual mandate before they can signal tapering bond purchases and ultimately hiking rates. With over a record 9 million jobs available in the U.S., it is going to take some time before the Fed will consider changing its current position.
Stocks, bonds and rates liked the idea that the Fed will continue to buy bonds and “pump up” the markets, despite many economists saying “we don’t really need it”.
“Inflation has risen, largely reflecting transitory factors”
Inflation is the arch-enemy of interest rates, so it is this portion of the Fed mandate Mr. Powell had to defend in his press conference. He was very clear that his definition of high inflation is something that remains “persistently high” for a “persistent” amount of time. So, we will not know if higher inflation is transitory for several months. In the meantime, bonds don’t appear to be worried about inflation as the 10-year Note yield hovers beneath 1.30%.
There is a famous market saying: “Don’t Fight the Fed.” If the Fed says they need to see “substantial” further progress towards their dual mandate and 9 million jobs remain available…we should expect the Fed to maintain its current position and make no changes on its monetary policy.
Providing further cover for the Fed to hold its position is the renewed COVID fears related to the Delta variant, along with some more restrictions. Think lower for longer as it relates to interest rates.
Bottom line: Interest rates are at the best levels seen since mid-February, making it a great opportunity to secure a home loan. For anyone considering a mortgage, now is the time.
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