Wednesday’s bond market has opened in negative territory as investors prepare for today’s activities. The stock markets are showing minor gains with the Dow up 22 points and the Nasdaq up 14 points. The bond market is currently down 12/32 (2.35%), but due to strength late yesterday we should only see a slight increase in this morning’s mortgage rates.
This morning has nothing of relevance scheduled. The afternoon is a completely different story though. We have three Fed events that are all related, but each individually have the potential to be a market mover. The first is the 2:00 PM adjournment of this week’s two-day FOMC meeting. It is widely expected that Chairman Yellen and company will not change key short-term interest rates at this meeting. However, market participants will be watching the post-meeting statement carefully for any hints at when they will make their initial increase to rates. If there are any surprises, look for an immediate reaction in the financial and mortgage markets.
Also at 2:00 PM ET, the Fed will release their updated estimates for future economic growth. They will post their revised predictions on GDP growth, unemployment and inflation. These could be a market mover if they show even minor revisions to any of the key headline economic numbers. The larger the change, the more likely the markets will react. Revisions that point toward slower economic growth would be good news for the bond market and mortgage rates as it would mean the Fed will probably make that rate increase later than sooner.
The final event could be the most important. There will be a press conference hosted by Fed Chairman Yellen at 2:30 PM ET. These press conferences with the media often lead to significant afternoon volatility in the markets and mortgage rates. Any surprises should cause a noticeable reaction in the markets. That means there is a high probability of seeing afternoon changes to mortgage rates this afternoon. The biggest point market participants hope to see is a clarification or a narrower time frame of when the Fed is expecting to start raising rates.
Look for an afternoon revision to this report shortly after the knee-jerk reactions in the markets have a chance to stabilize. There is relevant and important economic data set for release tomorrow, but it will be addressed in this afternoon’s update.