Home loan rates rapidly removed a week of progress this afternoon following the Fed statement and interview. Fed announcement day historically has numerous components: the statement itself, the summary of financial forecasts (SEP), and journalism conference.
Within the SEP, there is the dot plot revealing each Fed member’s assumptions about where the Fed Funds Rate will be in the future if the economy continues on the anticipated course. “The dots” only come out every other Fed conference, but they have a practice of causing unstable market responses. Today’s was no exception.
The dots essentially reveal that the average Fed member now sees the Fed Funds rate a minimum of 0.25% higher at the end of 2026 than they did back in March. This is responsible for the very first huge move in the bond market today.
Bonds lost more ground during brand-new Fed Chair Kevin Warsh’s press conference. The factors for this might be disputed. Some traders may have been anticipating Warsh to push back against the dot plot with a more rate-friendly tone. Others may have been discouraged at the absence of any assistance about how the Fed is analyzing incoming financial data. In general, lower openness relating to the Fed’s response function arguably requires traders to rate in a greater threat premium.
Because rates are based on bonds, and because bonds lost ground dramatically, home loan lending institutions wound up raising rates in the afternoon– some of them approximately 3 times. When the dust settled, the typical lender was back up to June 10th levels with top-tier 30yr fixed rates at 6.62%.