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According to the GDP data released this morning, economic growth is slowing.
Normally, slowing growth would be fantastic news for mortgage rate shoppers, because slowing growth tends to lead to lower mortgage rates.
Today, however, that's not the case because employment is strong, cost of living indicators are high, and the Fed is worried about inflation. Inflation, you'll remember, is when the value of the dollar decreases and more dollars are needed to buy everyday items.
A weaker dollar does more to raise mortgage rates for homeowners than an economic slowdown does to lower them. It's not very common to see both conditions exist simultaneously.
As the inflation-and-growth controlling arm of the government, the Fed may now find itself in a bind with respect to setting the Fed Funds Rate going forward.
See, the Fed can't raise the FFR to stave off inflation, nor can it lower the FFR to stoke growth. Therefore, the Fed is somewhat resigned to sitting back and just waiting to see what comes down the river.
San Francisco Fed President Janet Yellen acknowledged this dilemma yesterday, stating that the Fed is most likely to enter a "watchful waiting" mode before deciding to raise or lower rates.
This comment surprised markets which expected the Fed to begin cutting the FFR as soon as this summer. Mortgage rates moved higher in response.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator call 513-443-2020.
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