Financial markets do react to changes in financial public policy. That’s a valid axiom. So, if markets do not move when new public policy arrives, does that mean that markets no longer care? Or that the particular new policy does not matter?
Article image credited to Jacob Hilton / Unsplash
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Long-term rates found bottom late this week. The rebound is not bad — mortgages still close to 4.00 percent — but risks have tilted upward. The financial/economic world is odd enough today without unusual political intrusion, thus making it more important than ever to deconstruct events and pressures into separate components.
This week we can anticipate announcements around the Fed chair, tax reform and fresh September economic numbers. The 10-year has held the battle of 2.40 percent, and mortgages remain just above 4.00 percent, but odds favor them going up.
In the old days, from the 19th century through the founding of the Fed in 1912, and modern times until about 2000, U.S. economic cycles were defined by the housing cycle. Big booms and busts they were, and if not quite predictable, certainly a recurrent pattern.
Long-term rates are hanging on by fingertips to a key level, the stock market has the sillies (again), and all incoming economic reports are hot. It’s going to take a negative event (geopolitical or economic) to hold rates down where they have been for most of this year.