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Are Words Replacing Data?

October 10, 2016

Image Are Words Replacing Data?

The yield on the 10-year U.S. Treasury note spiked 10 basis points last Tuesday after Richmond Federal Reserve Bank President Jeffrey Lacker added his support for raising the fed funds rate sooner than later. The pro-interest-rate-hike contingent of Fed officials is growing. Several regional Fed bank presidents (like Lacker) now believe that implementing a series of small interest-rate increases would be good for the economy, even if the economy continues to post sub-standard growth. (By the way, Fed Chair Janet Yellen isn’t one of the supporters.) 

A rate hike this December appears more likely this week than last week. Traders in fed funds rate futures contracts now are betting a 64% chance a rate increase will occur in December.

This is all rather new in the annals of the Federal Reserve’s 113-year history. That is, Fed officials publicly guiding markets on interest-rate policy.  

In the good ole days, before the 2008 financial crisis, Fed officials were mostly supporting players on the financial stage. Today, they’re lead actors: Any utterance by a Fed official produces a meaningful swing in interest rates.

Accurately forecasting mortgage rates is a difficult enough proposition. It’s all the more difficult when a Fed official can change the outlook with an off-hand remark to the media. How often over the past three years has a Fed official hinted that a rate increase was imminent only to see the rate increase postponed? More than we can count. 

Image Are Words Replacing Data?

Image Are Words Replacing Data?

That said, as difficult as it may be, we’ll keep forecasting anyway. 

 

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