The Debt Ceiling, Economic Stimulus, & the Impact on RatesJun 13 2011
As we closed last week, the stock market had posted weekly declines for the last 6 weeks straight, which means that mortgage rates continue to be very strong. Last week alone, stocks fell 2.2%, and without any real positive counteracting data, concerns continued to rise over economic weakness going forward. Credit fears continue in Europe with concern in Portugal, Spain, Greece, Ireland, etc. With the shape of the yield curve and an outlook for low short-term rates, adjustable rate mortgage products also continue to look strong, with much lower rates than fixed rate products.
A couple of Fed members did speak last week that weak jobs data hasn’t changed their view on monetary policy, or the economy going forward. That being said, speculation is rising that some sort of stimulus may be needed to help the U.S. economy along the path to recovery. Any talk of stimulus, however, will be accompanied with talks of government spending and the debt ceiling, which will become a hotter topic until as we near the August deadline. If investors start selling Treasuries because of the debt ceiling uncertainty, or rating agencies downgrade U.S. debt, this should drive interest rates higher.
There wasn’t much economic data released this morning, so attention seems to be on Federal Reserve speeches, presidential debates, and news abroad. Economic news data does pick up later this week, however, producer and consumer price numbers to indicate inflation levels, retail sales figures, and manufacturing numbers, just to name a few. There is a definite possibility that mortgage rates continue to jump around.