As expected, the Fed raised the overnight cost of money by 0.25 percent to a band of 1.25 percent-1.50 percent. The immediate response in long-term bond and mortgage markets was down. Slightly, but down.

As expected, the Fed raised the overnight cost of money by 0.25 percent to a band of 1.25 percent-1.50 percent.

Movement of the Fed rate — up or down — can put pressure on mortgage interest rates, which often follow the lead of the 10-year Treasury note aka the “long bond.”

The immediate response in long-term bond and mortgage markets was down. Slightly, but down.

How can this be so? The immediate reasons are these:

  1. The Fed’s forecast and statement accompanying the rate hike were peaceful. Many had feared an acceleration in future hikes.
  2. Inflation is still low, and that’s the primary concern in long-term markets. This morning’s CPI report showed core inflation at 1.7 percent in the last year, below economists’ forecasts, and significantly below the Fed’s 2 percent target.
  3. The European Central bank and Bank of Japan are holding their long-term bond yields far below ours. The German 10-year yield today is 0.317 percent, and Japan’s 0.049 percent. Global investors find our 2.37 percent yield very attractive no matter what the Fed does.

The biggest financial question in 2018: how far can the Fed push up the cost of money before mortgage rates go up?

Next year you will hear the term, “yield curve” — the graphic representation of the spread between short-term and long-term money — until you scream for mercy.

Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.

Show Comments Hide Comments

Comments

Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Hear from Realogy, Pacaso, SERHANT., Spotify, Redfin, Douglas Elliman, and 100+ more leaders at ICNY.Register now×
Limited time: Get 30 days of Inman Select for $5.SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription