Mortgage rates jumped quickly today, after the question and answer session with Federal Reserve President Jerome Powell. What did he say to cause so much drama? In fact, it’s more about what he didn’t say. For some reason, market participants expected (or at least hoped) that Powell would say something to deal with the recent rise in longer-term rates. Some comments even went so far as to suggest that the Fed would suddenly change its mind about an adjustment to its bond-buying program, from which it has only made some effort to distance itself in recent months.
The adjustment in question is better known as “twist of the operation.“It consists of selling some of its shorter-maturity securities by the Fed and replacing them with longer maturities. The net effect is the downward pressure on long-term rates, such as mortgages and 10-year Treasury yields.
But Powell didn’t even bring it up. To be fair, nobody should have waited he did it, and those who were defending the idea did no one any favors, considering the overwhelming evidence to the contrary (several Fed speakers recently said that higher long-term rates are part of the process the economy is going through, and that, although they considered the securities purchase adjustment mentioned above, they unanimously decided that it was unnecessary for a number of reasons).
In short, Powell didn’t really say anything new that could be responsible for a big spike in rates. We concluded that a part of the commercial community simply expected him to throw a bone in the space of the longest maturity rate. After no getting what they wanted, these operators quickly adjusted in the other direction. Result: we would have seen today’s rates sooner or later. Rates entered the day lower than they would have been without the anticipation of Powell, thus making a more abrupt transition when everyone was on the same page.
Finally, to some extent, we may be seeing some anxiety about tomorrow’s big jobs report. Powell spoke about the significant improvement in the employment situation in the coming months. If tomorrow’s report suggests the same thing, it would be a very big double blow to rates – big enough for the market to prepare for that potential impact today.
In basic terms, the average creditor is almost a eighth of a percent higher the rate of conventional 30-year fixed loans compared to yesterday’s best levels.