Fed sticks to low rate plan
Posted April 25, 2012 6:12 p.m. EDT
We had a weaker than expected new home sales report Wednesday, pointing to a 7.1 percent decline in March, and we started off the day with a much weaker than expected durable goods report. That data came in down 4.2 percent for March, and was the largest month-to-month decline since January 2009.
On a traditional trading day, the weakness from either report would have likely resulted in modest bond price increases and would have put some nice downward pressure on mortgage rates. Given however that the markets were focused on the Fed Meeting Wednesday, this was not the case.
The Fed left interest rates unchanged and stuck to their plan to keep rates at exceptionally low levels through 2014. They indicated that even though the labor market had seen recent improvements, the unemployment rate continues to remain elevated.
For now, their inflationary guidance is still in place at 2 percent, and Bernanke indicated that he is comfortable with the committee’s consensus on rates and their guidance. It was also mentioned that economic fundamentals were still suggesting low levels of inflation.
It does seem right now that QE3 has been moved away from the table, but that could change depending upon the strength of economic conditions as we head into late spring and summer.
Treasuries headed above 2 percent earlier in the trading day, but settled just below 2 percent at closing time. Mortgage rates were generally unchanged.