Nashville Mortgage Rates Update- 01/25/12

Nashville Mortgage Rates

The FOMC policy statement came early today, at 12:30 EST.  The reaction was not what we or most expected, the 10 year note yield fell from 2.06% to 1.92% within minutes; mortgage prices jumped 81 bps (huge, normal daily jumps might be 12 bps).  By 2:30, however, much of the improvement had eroded yet still better than recent levels.  The FOMC shocked and surprised markets with the comment that it would leave the Fed Funds rate alone, not until 2013 as it said in the past, but to at least the end of 2014.  No one expected that kind of extension.  As expected, the Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September.

The Fed’s policy statement and economic forecasts being revised lower will take a day or two to fully discount in the markets.  The stock market today didn’t show much positive reaction to the Fed’s decision to keep rates low through 2014.  That market didn’t appreciate that the Fed once again lowered its GDP estimates for 2012 and 2013, and it wasn’t enamored with Bernanke saying the global economies are softening.  Finally in the last 30 minutes of trading the Dow did move up some.  It will however take a few days to see how markets take it all in; my view is that although the Fed has extended its low rate timeframe, nothing else changed. Interest rates declined but at the end of the day, not much.  We had forecast the 10 year would not move above 2.15%, given the events today that appears to be an even stronger outlook.  As for another run to the lows on the 10 year at 1.80%, that isn’t likely unless Europe’s mess actually leads to defaults.

Let’s see if the rally continues for tomorrow and Friday.  Will keep you posted with another Nashville Mortgage Rates Update this week if needed.