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Why Are Rates Still So Low?


Written By: David Reed
Sunday, May 12, 2019

And thatrsquo;s certainly good news for the economy as more and more people are finding jobs and employers are having a bit of a difficult time in recruiting new employees. Another interesting statistic is the four-week moving average of jobless claims dropped to the lowest levels not seen since 1969. Yep, you read that right.

But what about mortgage rates? With all the positive economic data >

Recently however, after a round of FOMC meetings, Powell stated there is no definite rate increase at sometime in 2019, after all. The change in tone has many thinking the Fed knows something we donrsquo;t but everyone, at least those who follow the markets, read the same data the Fed does. The fact is the economy is doing very, very well.

So then, why are rates still low? Historically, when the economy is doing well, investors will pull their money out of those boring, low-yielding mortgage bonds and put more money into stocks in hopes of greater gains. When demand for bonds, including mortgage bonds, increases, the yield on those bonds has to fall. That low yield translates into lower rates overall. But mortgage rates have been in a >

One answer might be that rates are currently in the ldquo;Goldilocksrdquo; zone, meaning that rates arenrsquo;t too low nor are they too high. Theyrsquo;re just right. The Fed is currently on a ldquo;steady as she goesrdquo; tack and investors are taking note. Stocks are doing well and bonds are doing pretty good, too. Historically when stocks are strong, bonds take a breather. But right now, wersquo;re sort of in the best of both worlds.

How long will it last? Who knows? But if yoursquo;re in the house buying mode itrsquo;s probably good advice to take advantage of where rates are today and not keeping your fingers crossed theyrsquo;ll continue to remain where they are today. There doesnrsquo;t seem to be any evidence the economy is on a tear so strong the Fed has to step in but on the other hand there doesnrsquo;t seem to be anything to indicate the economy is slowing down. Interesting times.



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