TO LOCK OR NOT TO LOCK: That is the question. Tomorrow, the CPI (“Consumer Price Index”) will be announced, and is expected to be strong – at least pushing into the 2% range for year-after-year inflation. A strong CPI gives impetus to the Fed’s consideration of raising their Funds Rate. In front of the CPI announcement, there has been a sell-off in bonds today, raising yields and pressuring mortgage interest rates upward.
On Thursday, the FOMC (“Federal Open Market Committee”) meets to determine whether or not they will raise the Fed Funds rate (not the same as mortgage interest rates, which are tied to the bond market). The Fed Funds rate is an overnight rate at which banks borrow/lend money to each other. If the Fed Funds rate increases, the cost of borrowing money for the consumer increases. This “rate management” is a Fed tool for managing inflation. The question is whether the Feds believe our domestic economic policy will rock a somewhat delicate world economy, hence the major deliberation of whether to raise the Fed Funds Rate by .25%. After Thursday, the only Fed rate decision meeting left in 2015 is in December. Then, since 2016 is an election year, Fed Fund Rates in 2016 will probably remain untouched. The FOMC decision on Thursday could go either way. Even if the Fed doesn’t raise their rate, the bond market might sell off even more. Lots of pressure, little potential upside to floating at this time. Our thought for the day is “TO LOCK”.
In the meantime, you may also want to refer www.nmmortgage.expert/DailyRateLockAdvisory for this week’s thoughts of float/lock strategies.