The American Federal Reserve is finishing the second day of a two day meeting today. We expect the Federal Reserve to make an announcement today that will contribute to the recent rally we are seeing in Equities Markets. This morning we saw lower than expected GDP numbers come out of the U.S.. Coupled with unemployment and no sign of inflation this makes a stronger case for the members of the Federal Reserve to continue their program of stimulating the economy with low interest rates and a monthly infusion of $85 Million into Bonds.
If, as we expect, the FOMC (U.S. Federal Open Market Committee) tells the market that it will continue to print money and keep interest rates low look for the stock markets to respond favourably, and as a result bond yields to increase as money shifts from Bonds over to Equities. When bond yields increase we will see mortgage rates tick up.
This bull market in equities is likely to continue in the short term. Although the real economy is not doing well, Equities are booming. It is important for the average investor to understand that a group of Banks and Investment Firms have had access to 0% money since 2008. These entities are now lifting the financial markets with their free money; perhaps they had a chat in Davos? No doubt a concerted effort is being made to lift the Equities Markets in order to lure in the retail investor money that has been sitting on the sidelines after being decimated by the financial collapse that these same entities created.
In short, look for the stock markets to continue to do well and Bond yields to creep higher resulting in higher fixed rate mortgages in the short term. The question you should be asking when choosing a mortgage these days is: Do I feel that we have turned the corner?