Today we are going to talk about what’s happening with interest rates.
By now you’ve probably noticed that mortgage rates continue to drop. The growing belief that the FOMC may not raise rates in 2019 was confirmed in their meeting last week. They voted unanimously to keep rates constant in March and their updated forecast calls for no increases in 2019. Additionally the Fed decided to stop unwinding the balance sheet, keeping rates artificially even lower. The market has priced in a 0% change of a rate hike this year and a 69% chance of a rate cut.
This very dovish signal has sent interest rates even lower with the 10yr down to 2.40%, a level not seen since the end of 2017.
The big question on everyone’s mind is whether or not rates can go even lower.
The argument for lower rates is the ongoing trade war with China, general chaos in Washington and the fact that rates around the world are much lower than in the US. For example the British 10yr is at 1%, in France it’s 0.35% and Japan is -0.07%. The US 10yr at 2.4% is quite attractive.
The argument against rates moving lower is the likelyhood that the trade war ends soon, some of the impeachment noise is dying down and the economy still looks very strong. And let’s not forget that the job market is near record low unemployment and we have very stable inflation near 2%.
We might be seeing some of the lowest rates for 2019 right now unless there is a snag with the trade war, if GDP starts to really slow down or inflation drops.
In the coming weeks, you should keep an eye on the following items:
• Interest rates – will the Fed’s actions last week continue to spook the market that perhaps not only do they not raise rates in 2019, but actually lower them
• Also the trade war could be a welcome relief to the stock market and push bond yields right back up or it could intensify and bring rates down even further