Long Beach Mortgage Rates Report: June 25, 2008

No recommendation until tomorrow.  All eyes are on the Federal Reserve Open Market Committee today.  At 2:15PM (EDT), 11:15 (PDT), they will release their interest rate decision and statement.  The fixed income securities market believe there is a 43% chance that the Fed will RAISE rates, to stifle inflation, in August and that there is a 61% chance that the hike will come in November.

The eyes will be on the Fed's commentary, though:

"We expect the Fed to keep the funds rate at 2% today but to shift to a more hawkish statement by placing more emphasis on inflation over growth risks," strategists at Credit Suisse wrote in a research report. "The Fed will likely use this meeting as an opportunity to set the stage for a potential rate rise in August."

If the Fed signals that rates could rise as early as August, expect Long Beach mortgage rates to jump .25% higher, from today's 6.375% 30 year fixed rate, over the next few weeks.  If the Fed signals rate hikes are "possible" as a way to fight inflation, expect rates to stay level through in July (6.25% to 6.5%).  Finally, if the Fed shifts back to its anti-recessionary talk, we could see rates drop down to 6%.

As you can see, there are a lot of "ifs".  This is why today's Fed commentary is all important.  The Fed's ambiguity has traders convinced that higher rates are a foregone conclusion.  Here's the silver lining hidden in this dark cloud; mortgage rates are equal to what they were in July, 2007.  The Fed Funds rate was at 5.25%, then.  Today, the Fed funds rate is at 2.25%.  What that means is that mortgage rates SHOULD be able to withstand some 5-6 rate hikes and stay under 7%.

Alas, markets are discounting mechanisms.  We still think there is a lot of risk to higher mortgage rates until the commodities bubble bursts.

Posted on June 25, 2008 10:08:48 by Brian.Brady

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