Economist's Commentary: June 23, 2008
Quick Take on the Economy: June 23, 2008
By Danielle Hale, Research Economist
10-year Treasury Yield
- Yields on the 10-year Treasury bond fell through late 2007 and the first quarter of 2008, but are now on the rise. Friday's rate of 4.16 is higher than March's 3.51 average yield.
- The rise is either a result of a return to normalcy-investors leaving the safety of treasury coupons for other investments-or it may portend inflation. The current spreads between inflation protected and nominal treasury coupons are running towards the upper end of their usual ranges giving some credence to the inflation explanation.
- Mortgage rates tend to mirror movements in the 10-year Treasury bond. Freddie Mac reported the 30 year fixed rate mortgage at 6.42% last week. Like the Treasury bond, mortgage rates fell through the first quarter but are now on the rise.
FOMC Meeting
- The market expects the FOMC to hold the Fed Funds rate steady as it shifts its priority to fighting inflation at its two day meeting June 24-25.
- Fed watchers will parse the statement and subsequent minutes for an indication of when the Fed may begin rate hikes, which are currently expected to begin in the fall or winter.
What does today's data mean for REALTORS® and consumers?
- Interest rates are rising. They will probably climb steadily for the duration of the year making now a great time to lock in a mortgage rate.
- Inflation risk is still elevated. Federal Reserve policy makers are likely to prioritize inflation over economic output as the greatest risk to the economy going forward.
Daily Forecast Update
- NAR's monthly official forecast as of June 9th (15K PDF)
- GDP Q2: 0.5%
- GDP Q3: 2.0%
- Unemployment rate by election time: 5.7%
- Average 30-year fixed mortgage rate in December: 6.6%
- Average 30-year fixed mortgage rate by mid-2009: 6.6%
- The next Fed policy change: a rate hike in December 2008.
This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >
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