Last Week in Review: Markets Cheer the Fed Minutes
This past week the financial markets reacted to the Fed minutes from the March Fed meeting. Heading into the release last Wednesday, the markets were on edge for three reasons:
- Would the Fed signal tapering of bond purchases?
- Would the Fed hint that rates will be hiked sooner than expected?
- Were inflation concerns elevating?
Well, market fears quickly turned to cheers as the Fed minutes reinforced that they are not “taking the punchbowl away” and they are not even thinking about raising rates or tapering bond purchases.
The main reason for the Fed’s position? The minutes revealed that “Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized.”
This line and more talk downplaying higher inflation fear longer-term allowed stocks to rally to all-time highs, while also allowing rates to also improve week-over-week.
On top of telling the markets the Fed will continue to buy bonds every day to help keep rates low, they upped their growth forecast for the economy. They now forecast GDP to average 6.5% in 2021, up sharply from their 4.2% forecast just made in December.
The Fed also sees unemployment declining to 4.5% by year-end, which is closer to the 3.4% low seen in February 2020, and they see inflation running at 2.2%, slightly above their target longer-term run rate of 2%.
The Fed is the most important thing to follow in the markets right now. When they are telling the markets they are not even “thinking about…thinking about” raising rates or tapering their bond purchases, this gives reason to “party like it’s 1999.”
What does it mean for you? Long-term rates like mortgages are not likely to move too high anytime soon.
This is a good story for millions who could still refinance as well as fuel continued opportunity in housing. Lastly, for new construction, there is no pressure just yet to lock any of those.
Bottom line: Rates have improved week-over-week, and the trend may very well continue. However, like we experienced several weeks ago, any further rate improvement may be modest and short-lived. As economies reopen, we should expect rates to continue to increase further over time.