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Huge Reversal for Mortgage Rates After Jobs Report
As I reported yesterday the move higher in rates was based on perceptions rather than reality. Today reality struck back and rates have plummeted back to pre-jobs report and pre-ECB announcement levels—right where they should be.
The monthly Non-Farm Payrolls report issued this morning rose by a disappointing 96,000 new jobs. No matter whose opinion you choose to believe regarding how many new jobs it takes to simply cover new entrants into the workforce, this result fails to reach that level. Consequently, it would be reasonable to expect that the unemployment rate actually rose this month. Shockingly however, the unemployment rate actually dropped from 8.3% to 8.1%! How does this happen?
The only way such a drop can happen—and a .2% move represents a huge drop—is for very large numbers of the unemployed to give up looking for work. When an unemployed person is no longer eligible for benefits they are excluded from the ranks of the “official” unemployed unless they volunteer that they are still working for work.
Now the speculation is rampant that the US Federal Reserve is all but guaranteed to provide more stimulus most likely in the form of mortgage-backed securities purchases. Well known pessimistic investor and economist Nouriel Roubini said, ““If you get the fiscal drag as growth slows, you’re close to zero growth next year. This implies that by December the Fed is going to do a third round of QE3.”
Mortgage rates are nearing all-time lows as I write this. With the Fed not likely to make its decision on stimulus until next Thursday, there could be some slight upward pressure as speculation continues.
Next Thursday the Fed will meet and will hold a news conference after the release of its monthly statement. With job growth exceptionally weak and inflation exceedingly low, I believe that it is highly likely that they will vote to provide new stimulus.
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2012-09-10 02:05:18
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