Mortgage Rates Rise on Budget, Fed Chair Expectations

Mortgage rates jumped about 8 basis points at the end of last week on a double-whammy of budget policy and Fed leadership news, rising to their highest level since mid-July and largely staying there through the middle part of this week.

On Thursday (Oct. 19), the Senate passed a 2018 budget resolution, which markets have interpreted as increasing the odds that Congress will be able to enact tax reform. By most estimates, tax reform would boost economic growth in the near term, allowing the Fed to raise interest rates at a faster pace and, potentially, to a higher terminal level.

Second, there is growing speculation that Stanford Professor John Taylor is seriously being considered as the next Chair of the Federal Reserve. Taylor’s academic work, if directly translated into monetary policy, would imply substantially higher short-term interest rates than currently set by the FOMC.

Q3 GDP data, due Friday (Oct. 27), are the most important U.S. data scheduled for release this week. Markets are also likely to respond if/when President Trump names a Fed Chair nominee.