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Fed Fails To Give The Market Direction

The Federal Reserve (the Fed) wasn’t able to provide the market with meaningful guidance as to when they would start raising rates and how fast subsequent rate increases would come in the latest policy statement.  According to the statement, Fed officials are looking to see ‘some further’ improvement, perhaps implying that economic data has nearly reached their targets to begin raising rates.  The most substantial change to the statement was directed at the labor market, saying ‘the labor market continued to improve, with solid job gains and declining unemployment.  Futures on Fed Funds were mostly unchanged after the statement, as were Mortgages and the 10 year yield, currently at 2.27 percent.

Without much guidance from the Fed, all eyes will once again focus on the July Employment Report due to come out August 7th.   As it stands, economists estimate that the US Economy will add 220,000 non-farm jobs in July and that the unemployment rate will remain the same at 5.3 percent.  If the US economy creates more than 220,000 jobs, we could see the Fed moving forward with the first rate increase in September.   Currently, financial markets are showing close to a 40 percent probability of a rate increase in September.

Despite mortgage rates dropping to 4.28 percent last week, refinancing activity remains light.  The share of refinancing for the entire mortgage market is 42.7 percent, down nearly 30 percent from earlier this year. Home price growth has been strong, showing 5 percent year-over-year growth in March.  According to the S&P/Case-Shiller 20-city home price index, the Tampa area improved the most at 8.1 percent.

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