Interest rates move down on Feds announcement

Interest rates moved down about a tenth of a point with the Feds latest announcment.The following are excerpts from the newsletter on interest rates published by HSH Associates :

” In the end, the decision was a non-decision. After the Federal Reserve spent several months preparing the markets for a possible start of the end of its Quantitative Easing program, the Fed looked across the economy and decided, at least for the moment, that support at the existing pace of $85 billion per month was warranted after all.

As our expectations were that a very small, “toe-in-the-water” approach to tapering would be announced at the end of the meeting, we admit only slight surprise that the Fed chose to make no change at all. A chance as small as the one we expected would have had negligible effect on markets, and it may very well be that the Fed did not want to make any change until a more meaningful move could be made.

As we considered the Fed’s options in last week’s MarketTrends we wondered: “However, what if the Fed chooses not to move at this meeting? Markets may interpret this as a signal that the economy is falling short of the Fed’s expectations, and that it is somewhat weaker and more in need of continuing support than not. If this turns out to be the case, mortgage rates would probably decline modestly, at least for a time, but would tend to firm up again as we approach the next Fed meeting, and so on.”

It is into this pattern we have seemed to embark.

With the Fed back out of the tapering game for at least a few more weeks (and perhaps longer, if the economy fails to continue to find traction), mortgage rates should be well supported. However, a lack of move this time this may lead to some additional volatility in rates, should the economic data continue to prove solid, particularly as the next Fed meeting approaches. That’s a problem for a few weeks down the road. In the interim, we have lower rates in place this week and expect to have lower rates again next week, as we watch for more clues about economic trends. For our part, and as far as rates go, we think there might be a 10-12 basis point decline in HSH’s FRMI by the time the end of the week comes.”

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