Monday, December 14, 2009

Monday, December 14, 2009

Boring.


Trading activity has almost ground to a standstill in the mortgage market as investors choose to take a cautious "wait-and-see" approach in front of the last Federal Open Market Committee meeting of 2009. The text and tone of the Committee's post-meeting statement (scheduled for release at 2:15 p.m. ET, Wednesday, December 16th) will contribute significantly to the trend trajectory of mortgage interest rates up and through the Christmas break.


Any hint that the central bank is considering backing off of its asset purchase programs, or perhaps mulling an increase in its benchmark short-term interest rates will likely send mortgage interest rates notably higher. While it is worth noting this risk exists - the probability of such an outcome is exceptionally low.


The underlying pace of inflation remains by all measures comfortably within the Fed's stated "comfort zone." From a historical perspective there has never been a time that the Fed has begun to tighten short-term interest rates when unemployment rates were rising and inflation pressures remained benign. As things now stand, the central bank will probably guardedly acknowledge the recent improvement in the nation's economic backdrop -- but will clearly renew its commitment to keep its benchmark short-term interest rates near zero for an "extended period." If this assessment proves accurate, look for this event to have little, if any significant influence on the trend trajectory of mortgage interest rates.

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