Morning Report: The Fed maintains rates

Vital Statistics:

 LastChange
S&P futures371117.3
Oil (WTI)48.270.44
10 year government bond yield 0.90%
30 year fixed rate mortgage 2.78%

Stocks are higher this morning on no real news. Bonds and MBS are up.

The Fed maintained interest rates at current levels and releases a new set of economic projections. The projections for 2020 and 2021 GDP were moved upwards, while the unemployment forecasts for both years were moved downwards. Treasury and MBS purchases will continue. In the press conference, Jerome Powell said that he expects the economy to accelerate in the second half of 2021.

The dot plot was more or less unchanged from September, and the message is the Fed isn’t going to even think about hiking rates in 2021, and they will probably stay right here through 2023.

The Fed’s policy means that housing will be well-supported for the foreseeable future. There was hope that the Fed might increase MBS purchases, but it is probably unnecessary given that mortgage rates are at record lows despite the recent increase in the 10-year. We are starting to see more competitive behavior from other lenders, however this could be somewhat driven by seasonality.

Housing starts came in at 1.55 million last month, while building permits rose to 1.6 million. Given the flood of people leaving the cities and the supply / demand imbalance, housing should be a bright spot in the economy during 2021 and beyond.

Initial Jobless Claims rose again to 885,000.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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