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Interest Rate Forecast
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May 23, 2005 LOS ANGELES -- After hearing some good
news from the Fed about economic control over inflation pressures seen earlier
this year, interest rates for fixed mortgage home loans have been not only low,
but also quite stable. We've seen little fluctuation in home loan rates the past
5 business days. Although there has been relatively light trading of mortgage
bonds, the mortgage rate index hasn't seen a jump. Perhaps this can be
attributed to the fact that although bond traders are not particularly
aggressive right now, it is not as a result of a panic. This is a good thing. It
does, however, leave one question in the mortgage predictor's mind: When will
the market and mortgage rates become so compressed that they pop like an
over-filled balloon, and what will the results turn out to be? Lower or higher
interest rates? Hmmm, your guess may, in fact, be as good as mine. The good news
is that I am required to give a prediction and most likely you're not.
Let's rewind for a minute. Although the release of economic
reports by the Fed is signaled heavily that inflation poses no threat to the
consumer level of our economy, there is more to consider before becoming
warm-and-fuzzy. Namely, inflation will only remain in check for as long as new
jobs are created throughout industrial platforms.
That being said, we must turn to our projection (if one can be
mustered) of what the government's Job Report for May 2005 is going to reveal
next week. My guess is that the entire mortgage and bond marketplaces will come
unraveled if the report shows adversities in the creation of work for Americans.
In addition to the May Job Report being the fulcrum point of
where rates will go, we must also be cautious of Tuesday's upcoming release by
the FOMC of the May 3 meeting. I, for one, expect no surprises to come forth in
the report, but I've been fooled before. I will say that if the Fed moves from
their current stance it could catalyze a major effect on the marketplace.
Bottom line: I feel rates will stay stable in the forthcoming
week. - By Stockton Marquette, Mortgage Market Analyst and Columnist.
Email Mr. Marquette.
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