By Danny Jasper, Senior Vice President, Capital Markets, Castle & Cooke Mortgage, LLC
Today’s sole focus will be on the Federal Reserve announcement after the conclusion of this month’s two day FOMC meeting. The Fed is expected to release their statement at 2:30p.m. EST. Analysts had estimated earlier this year that this month would mark the start of Fed normalization, but after subpar data to start the year, the expectation has shifted to September or later. The interesting part of today’s Fed meeting is that Fed in no longer limited by previous forward guidance from raising the overnight rate, meaning that they could potentially surprise and raise rates (especially considering the recent run of strong data around jobs and retail sales), though as mentioned, it isn’t likely to happen in this announcement.
Of greater importance with today’s Fed announcement is the Fed’s summary of economic projections. In those projections, two primary components will be important to watch. First, their projection on longer-run GDP could be revised down based on recent dovish commentary from FOMC officials. Currently, the Fed’s projection is between 2.0 and 2.3%.
Second, focus will be on the rate of normalization (i.e. how fast subsequent increases will happen after the initial increase occurs), as in the March meeting 14 of 17 Fed officials believed there would be two or more increases in 2015. This is likely to be moved lower in this announcement and will likely move lower the March projection for a 3.75% Fed funds rate over the longer run. As usual, the Fed announcement generally creates high volatility after the announcement.
From a macroeconomic perspective, mortgage applications for last week fell 5.5% with rates rising, and the 30-year rate was up nationally from 4.17% to 4.22%. Refinance applications were down 6.9% and purchase applications were 4.2% lower. In Europe, the standoff in Greece hasn’t changed, with Eurozone leaders “preparing contingency plans for a Greek default”, and Greek leaders saying they were elected to prevent deals that forced austerity on the country. Not much of a change in sentiment there on either end, but both parties continue to work at it.