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Chrisman's Corner: What Should JMAC’s Brokers Know about the Current Economic Climate?

Our experienced brokers understand a great deal about the economy. They know that in a “normal” environment, generally speaking, if the economy is doing well rates tend to go higher (due to the demand for credit), whereas if the economy is faring poorly rates tend to remain constant or even drop. Interestingly enough, there was not a great amount of positive economic news in releases this week.

 Friday we learned that the job market is doing well. Say what you want about the statistics, what was reported showed that the unemployment rate dropped, nonfarm payrolls were strong, and hourly earnings were up. What about housing? We have recently learned that Pending Home Sales dropped for a second month. New home sales dropped dramatically in September, durable goods orders slowed showing weakness in manufacturing and 3rd Quarter Gross Domestic Product data missed expectations showing the economy grew at a 1.5% rate following the 3.9% growth in the prior quarter. In a normal environment the combination of data would result in interest rates, including mortgage rates, slipping lower.

But the environment becomes abnormal, however, when economic news is released surrounding an announcement from the Federal Reserve's Open Market Committee: the little-known group that determines if the Fed is going to move its fed funds rate. That announcement came a few Wednesdays ago, and to the surprise of no one that even remotely follows this sort of thing, the Fed announced it was holding steady on the funds rate.

 In the announcement the Fed reiterated that it would move the rate when it saw improvement in employment and felt confident that prices would reach the fed's goal of 2% inflation; conditions which may present themselves by the December meeting of the committee. But JMAC’s brokers see the writing on the wall: certainly the employment news Friday shifted the discussion back to the Fed raising short term rates at their December meeting.