Financing Homes in Lake Tahoe and Truckee since 1992.

Lake Tahoe Mortgage and Lake Tahoe Home Loan Commentary

When Will the Fed Make Its Move?

 Commentary ~June 12, 2013

Mortgage interest rates have been rising—not at breakneck speed—but relatively fast and with consistency. Freddie Mac’s average rate continued to rise this past week, moving 10 basis points higher and taking the rest of the market with it. 

How can we read the rising rates? Inevitably intriguing is an on-going study of where the 10-year Treasury note is going while the Freddie Mac average rate is climbing its way to new heights. It rose very nearly 10 basis points this past week to parallel the rise of mortgage rates nearly perfectly.  

If the handhold between the 10-year T-note and the average mortgage rate loosens and the two rates go their separate ways, an interest rate upturn may be coming to an end. But that could be quite some time; the mortgage rate could have a fairly long climb to reach where it would be if the Fed weren’t keeping a lid on it with its bond buying. 

The buying of bonds to keep rates low will stop when employment growth improves—and demonstrates that the improvement will continue. Last Friday’s report on May’s job growth, really proved nothing. Based on reaction in the stock markets, investors were pleased with the addition of 175,000 jobs to the overall economy. But the job growth was, at best, adequate, and unlikely to cause the Fed to stop its programs of aggressive bond purchases. 

Still, it seems a commonly-held assumption that the time when the Fed can step back from holding down rates is fairly near. As Atlanta Federal Reserve Board President Dennis Lockhart said last week, “We are approaching a period in which an adjustment to the asset-purchase policy can be considered.” 

Let’s translate that. The purchase of mortgage-backed bonds by the Fed is already being reconsidered—and the fact that someone like Lockhart says a change can now “be considered” means a lot of Fed officials are already considering it. Also, implicit in Lockhart’s words is a favorable judgment: The reconsidering is appropriate at this time. Otherwise, he wouldn’t be talking about it. 

So we will watch, and investors will doubtless expect the Fed to move closer and closer to the end of QE3. We’re probably going to watch rates continue to rise at something like their current pace, and we’ll all prepare for the Fed to step away from its domineering programs. Knowing it’s coming means it will all be expected and already thoroughly dissected by the economists and pundits. And that, one suspects, is exactly what the Fed is trying to achieve. A calm transition away from its manipulations.