Rates: Steady as She Goes
Willing buyers and willing sellers make a market, whether it is baseball cards, collectible movie costumes from the 1930s, or fixed-income securities. And fixed-income securities, whether they are corporate debt, U.S. government debt, or backed by residential mortgages, have been taking their cue from the direction of the United States economy. And, aside from a little movement up or down, Orion’s brokers know that they’ve been steady.
Last week’s economic data confirmed that there isn’t much to move bond prices or interest rates in general. The news was positive despite lower-than-expected employment gains in August. Housing and jobs drive the economy in this country, and employers added only 235,000 jobs in August while the unemployment rate dipped slightly to 5.19 percent. The most job gains occurred in professional and business services, transportation and warehousing, private education, manufacturing, and other services. Over the last year, the labor force grew by 0.4 percent while payrolls were up 4.3 percent, leading to the tight job market.
Employers also cut the fewest jobs since June 1997, according to the Challenger, Gray and Christmas Job Cuts Report. Although payrolls are increasing and job cuts are significantly down, total employment is still roughly 5.3 million below the pre-pandemic high in February 2020 and the number of people considered to be in the labor force is down 4.9 million.
While the Fed continues to monitor the employment situation closely, the Federal Open Market Committee is expected to provide more insight as to when it may begin to taper its asset purchases at the upcoming FOMC meeting later this month. No changes are expected to monetary policy at that meeting and there are no expectations of changes to the Fed Funds Rate until well into next year.
All of this should be greeted by Orion’s brokers as good news. The fact that rates have been steady for the last several months indicates to many economists and traders that rates will be steady through year-end. And few brokers, and your clients, can complain about 30-year fixed rate mortgages at 3 percent or lower.