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Market Update

From the Desk of Jason Obradovich, Chief Investment Officer

Inflation Is No Longer Transitory

Hello everyone, and welcome back to the mortgage rundown. Today, we're going to talk about what's happening with interest rates. If you don't know by now, yesterday was the FOMC meeting where they decided not to change interest rates, but they did decide to double the pace of asset purchases.

This was an unexpected move and somewhat an expected move by the Federal Reserve, given the fact that they haven't acknowledged that inflation is not transitory until this meeting. In fact, in this meeting, they did acknowledge that inflation is no longer transitory; that inflation this year will be north of 5% and even next year will be north of 2%. If they continue the pace of asset tapering like they are now, they'll be done purchasing assets by March of next year.

The Fed also said that they're not going to raise interest rates until asset purchases have been completed. And last but not least, the Fed does expect to raise interest rates three times next year.

Now, if you're watching all the Fed moves and then looking at the Treasury market, it might be somewhat confusing. Now, if you look at the chart on your screen, the 10-year Treasury is actually down since the beginning of summer, even though for most of us, we actually think of rates as moving higher. But look at the next chart on your screen, the two-year Treasury is up substantially since the beginning of summer and mortgage rates have moved up higher as well.

So, a lot of people try to correlate movements in the 10-year with mortgage rates. But really, what you want to look at is the two-year or the five-year. So, I've added another graph on your screen, which is the five-year Treasury and mortgage rates. And you can see they've pretty much moved in lockstep since the beginning of summer. And that's something you going to want to keep an eye on. That’s it everyone from the capital markets desk this week. Thank you all for watching. Have a great day. Have a great holiday season and happy new year. And we'll talk to you next year in 2022.Take care.



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