Why fear of Fed action isn’t sending mortgage rates skyward

Rates are vulnerable to the Fed, but held down by Europe's troubles

Learn the New Luxury Playbook at Luxury Connect | October 18-19 at the Beverly Hills Hotel

In a world and life filled with uncertainty, it is gratifying to watch markets behave exactly as they should. Bonds and mortgages got a bad scare on Wednesday, rates up sharply, but as the full picture revealed itself rates are back where we started. A lot else is not where it began this week, nor will it be soon. The catalyst for Wednesday, like an overdone pool-table break: Second-quarter GDP arrived at a 4 percent growth rate. Everyone expected a rebound from the negative first quarter, but not an upward revision in that negative (from minus 2.9 percent to minus 2.1 percent), and especially not indications of rising spending, incomes and inflation. Real personal consumption expenditures jumped 2.5 percent in Q2 versus 1.2 percent in Q1, and the PCE "deflator" (converting nominal to after-inflation) popped to 1.9 percent from 1.4 percent. The immediate reaction: Here comes the Fed. Bonds and mortgages instantly flipped to bearish trend. But the world is a big, complicated...