The Federal Reserve
The market-moving event this week could be on Wednesday where the Federal Reserve will be in the spotlight. While this week’s policy decision will more than likely yield no immediate policy changes, it will take on additional weight as it provides commentary on the central banks and what they are thinking around the count, the pace, the economic recovery, and whether a faster than expected rebound might warrant a near term adjustment to the Fed policy. The Fed meeting this week is important because the market is expecting the Fed to keep rates where they are for some time. If the Fed provides any hints that there will be a change, it could cause a big market reaction. Our highly leveraged economy might be ill-prepared to deal with a quick rise in borrowing costs which could hurt the market sentiment. Chairman Powell has a tough, but very important job on Wednesday of offering a more optimistic assessment of the economy while also be addressing the fears of inflation and trying to prevent a destabilizing rise in bond yield. We’ll be watching the Fed’s press conference carefully on Wednesday to see what is said about higher inflation and also what impact the Fed will have on interest rates going forward the next couple of weeks or months.
We often hear conversations about how the Federal Reserve impacts corporate America, but as most people know that interest rates impact every individual person largely through their mortgage. We’ve seen over the last year how mortgage rates have dropped precipitously to a low of 2.67%. The 30-year Fannie Mae or Freddie Mac mortgage rate in December 2020 was low last year but has started to creep back up which, right now, isn’t terribly concerning. Currently, the average mortgage rate is 3.05% which is still much lower than this time last year where the average rate was 3.5% but it’s starting to creep up. The Fed buys $40 billion worth of mortgage debt a month. Those purchases made by the Fed will push prices up and keep interest rates down as long as the Fed is buying that many mortgages. People not only were getting a new mortgage last year under these low interest rates but a lot of people also took advantage of the low rates by refinancing their mortgages. Last year, individuals in America took $153 billion out of their homes by refinancing. That’s a 42% jump from 2019 and caused an increase in the savings rate. While consumer spending didn’t really move during the pandemic, a lot of people are still holding on to those excess savings which could be spent this year. That one-time refinance boom may be trickling out if we start seeing current year rates higher than the previous year’s rates. We still have a good spread between current year rates at 3.05% and last year’s rate of 3.5% so there’s still room for refinancing as it is. It’s something we’re looking at with clients in relation to their Financial Blueprints. We will be looking to see if it makes sense for them to refinance while there’s still an opportunity with these low rates. If suitable, people can either take money out of their house or reduce their monthly mortgage rate and use the extra monthly savings for future spending and expenses. Mortgages play a huge role with the American consumer and this topic is something we will continue to watch closely because there is still a huge benefit to take advantage of. With the Fed being a huge driver of mortgage rates, on Wednesday when we watch to see what the Fed has to say, we are not focusing on what they say regarding the current market environment, but how will it impact the mortgage market, the future, and how it may impact our clients as well as the overall consumer.
On this past Friday, the S&P 500 closed at a record high of 3,943. That provides a new resistance level of 3,980 and a new support level of 3,900. One of the indicators that we will be focusing on is the 50-day moving average. The 50-day moving average is currently at 3,845 and week-by-week we have seen the market continue to stay above that. As mentioned previously, the Fed’s meeting on Wednesday will be a big topic to focus on from a consumer standpoint since it is something that could potentially cause more volatility in the markets.
Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Economic forecasts set forth in this presentation may not develop as predicted.
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