WEDNESDAY AFTERNOON’S UPDATE:

This week’s FOMC meeting has adjourned with an announcement that the Fed has left key rates unchanged for the second consecutive meeting. This was widely expected due to the recent inflation data and the unknown long-term impact the Iran war and spike in oil prices will have on the economy. The decision was a vote of 11-1, with the lone dissenting vote wanting a .250 reduction at this time.

Their revised economic projections painted a picture of concern going forward regarding inflation. They now think inflation will be at 2.7% at the end of this year, up from 2.5% that was predicted back in December. Other major points in the projections have the unemployment rate holding at 4.4% at the end of 2026 while overall economic activity (GDP) will likely be at 2.4% instead of the 2.3% they estimated during their last update. The so-called dot plot shows Fed members are predicting one rate cut this year and a single reduction next year. This is of course, assuming oil prices and inflation start moving back lower again.

The markets have responded negatively to this afternoon events. Stocks have extended their morning losses significantly, with the Dow now down 621 points and the Nasdaq down 213 points. The bond market is currently 14/32 (4.25%). This is enough of a move from this morning’s level to cause an intraday upward revision in rates of approximately .250 of a discount point if bonds hold their current levels.

Earlier today, February’s Producer Price Index (PPI) revealed inflation was much stronger than thought at the wholesale level of the economy last month. Keep in mind that this was well before the Iran war started, so we haven’t seen the impact of it in our traditional inflation reports yet. The overall PPI jumped 0.7% last month with the core data rising 0.5%. Both readings were expected to rise only 0.3%. On an annual basis, the overall PPI rose to 3.4% when it was expected to hold at January’s 2.9% and the more important core data going from 3.5% in January to 3.9% last month. These numbers clearly indicate wholesale inflation is moving away from the Fed’s goals (2.0% annually) instead of towards it. This caused bonds to erase overnight gains and open in negative territory this morning.

January's Factory Orders report was this morning’s second economic report. The 10:00 AM ET release showed a 0.1% increase in new orders for both durable and non-durable goods. This matched forecasts and is a sign the manufacturing sector was flat as the new year began. We did not see bonds react to the data.

This week’s economic calendar will come to a close tomorrow morning with the release of last week’s unemployment figures at 8:30 AM ET, followed by January’s New Home Sales report at 10:00 AM ET. Neither is likely to cause a noticeable move in rates, particularly the aged housing data. The weekly unemployment update is expected to show 215,000 new claims for jobless benefits were filed last week, up a little from the previous week’s 213,000 initial filings. Rising claims are a sign of weakness in the employment sector, meaning a much larger number would be considered good news for bonds and mortgage pricing.

The home sales report is likely to have less of an impact on tomorrow’s rates since it covers only sales of newly built homes, which make up such a small portion of all home sales in the U.S. The fact that it is from January also will diminish its influence on tomorrow’s mortgage pricing. Forecasts have sales falling, to hint at weakness in the new home portion of the sector. Favorable news for rates would be a larger drop than what analysts are expecting.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.