WHY MORTGAGE INTEREST RATES ARE RISING

The bond and mortgage markets started this morning where they left off yesterday, interest rates are increasing and mortgage rates going higher. Yesterday’s surprise 4.0% Q2 GDP, Q1 revised from -2.9% to -2.1% and the Q2 deflator at 2.0% took all of the bullishness out of the rate markets. Geopolitical situations are also being pushed back as increasing belief that Ukraine/Russia and Israel/Hamas are more regional and won’t escalate to wider perspectives. The US stock market, the European stock markets are under pressure and likely will sell off more as economic reports increase the outlook that the Fed will increase interest rates sooner than expected. In the policy statement yesterday the Fed said it will keep the FF rate at current levels for an extended period. The Fed concerns that the employment gains show significant under utilization in the labor markets (low paying and part time jobs) went nowhere in the minds of traders in stocks and bonds. Under the headlines there is more dissension within the FOMC on when to increase the FF rate; we get the sense that more members are leaning toward an earlier increase than what was stated in the policy statement. That is what markets are also thinking.