Mortgage rates jumped fast today after Q&A session with Federal Reserve Chairman Jerome Powell. What did he say to cause such drama? Actually, it’s more about what he did not say. For some reason, market participants expected (or at least hoped) that Powell would say something to address the recent run-up to longer-term rates. Some comments have gone so far that the Fed would suddenly change its mind about adjusting its bond-buying program, which it has been trying to do for the past few months.
The adaptation in question is most commonly known as “operation rotates.“This is due to the fact that the Fed is selling some of its shorter maturity bonds and replacing them with longer maturities. The net effect is downward pressure on long-term rates such as mortgage lending and 10-year Treasury yields.
But Powell did not even discuss the subject. In fairness, no one should have expected that he would do so, and those who advocated the idea did no one really any favors, given the overwhelming evidence to the contrary (several Fed speakers recently said that higher long-term rates are part of the process that the economy, and although they buy the above adjustment of securities, they unanimously decided that it was unnecessary for various reasons).
In short, Powell did not really say anything new that would be responsible for a major rate hike. We must conclude that part of the trading community simply expects him to throw a leg into the space for longer adulthood. After not to get what they were after, those traders quickly adjusted back in the other direction. Bottom line: we would have seen today’s rates sooner or later. The rates saw the day lower than Powell’s anticipation, which made a more sudden transition when everyone came to the same page.
Finally, to some extent, we may see a little anxiety about tomorrow’s big work report. Powell talked about significantly improving employment in the coming months. If tomorrow’s report suggests the same, it would be a fairly large double tariff – large enough to give the market the potential impact today.
In terms of nuts and bolts, the average borrower is almost a eighth percent higher in rate on conventional 30 year fixed loans against yesterday’s best levels.