Interest rates move closer to 2013 highs

Interest rates inched up a bit again this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :

” Mortgage rates bounced higher this week, as minutes from the Federal Reserve’s last meeting and an answer to a Senator’s question by Federal Reserve Chairman Bernanke roiled the markets, causing a selloff in both stocks and bonds, with the latter subsequently lifting mortgage rates. In the end, really, nothing has changed very much.

Minutes of the Fed’s April 30-May 1 meeting exposed a willingness on the part of some FOMC members to consider winding down QE3 before too much more time has passed, possibly even as early as next month, provided the economy is producing enough growth to warrant such a change. Mr. Bernanke’s answer to a question about the timing of the beginning of a reduction in purchases of MBS and Treasuries seemed to suggest that September might be a more likely point.

With some uncertainty poured over the market, stocks and bonds both sold off, and mortgage rates moved closer to 2013 highs, just a few short weeks after hitting 2013 lows. Still, they are well anchored and remain near record lows.

There certainly seems nothing in the present economic, employment or inflation data to suggest that it’s time to end Fed stimulus, and certainly not in just a few weeks’ time. If the economy puts in a good summer, could such a process be initiated? Possibly, but the odds don’t strongly favor it at this point. That said, even when it becomes time, the process will be a gradual one — and may not be conducted in a linear fashion. For example, if trimming MBS purchases causes mortgage rates to rise which in turn stalls the housing recovery, the Fed would likely reverse course, at least for a time.

In the end, what has changed so much that the Fed would suddenly look to run to the exit? Nothing. The economy remains in a muted pattern at best, with serious obstacles preventing a easy shift to a higher gear. Will this change? At some point, yes, as will Federal Reserve policy. However, without robust economic growth, quickly falling unemployment or a hot flare of inflation, that point remains in the future… and when it comes, it will merely be the beginning of what is likely to be a protracted process of getting back to normal monetary policy.

For next week, a holiday-shortened one, mortgage rates will be higher, perhaps reaching the highest point of 2013 (not that we’re all that far from it at the moment). Best to figure on another 6-8 basis point rise, and a thin calendar of data doesn’t suggest much to temper any increase, sans an downward update to first quarter GDP. “

The following are interest rate quotes from Al Hermann of American California Financial: