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MBS Day Ahead: Not Much to be Learned From Fed Minutes

October 10, 2017
by admin

On both MBS Live and Mortgage News Daily, there’s a video in the news stream titled “Key things to watch in the Fed minutes.” The commentator rather emphatically says there are 3 important things: “inflation, inflation, and inflation.”

News flash to that guy: there’s nothing the Fed can say about inflation that we haven’t already heard them say in even more meaningful ways. The commentator asserts that we need to hear what the Fed is going to do about the fact that they want to hike rates in December against a backdrop of persistently low/flat inflation.

Great news for him! They’ve already given their opinion on that matter as well! The Fed was well aware of the inflation landscape at the last meeting, and the Fed’s rate hike forecast extended only minimally–much less than the average market participant expected.

Fed speakers (meaning, at individual speeches as opposed to the Fed Announcement and forecasts) have also been clear on their stance. Several of them are freaked out about inflation and will not support a December rate hike because of that fact. Most of them believe the currently low/flat inflation is temporary and will be picking back up some time in the coming months or years. Several of them believe that inflation is the greatest evil the world has ever known and that the Fed is drastically behind the curve in tightening monetary policy to combat it. The gamut of these views will certainly be covered in the Minutes.

Of far greater importance (but still not earth-shatteringly important overall) than the Fed’s already-well-known stance on inflation is their discussion of how much (or how little) fiscal policy expectations played into their decision-making process. Several Fed members have already commented on this and markets seemed to react. This is the kind of topic that is more likely to be covered in the Fed Minutes whereas it didn’t get major playtime in Announcement itself.

Apart from the Fed, we have the Treasury auction cycle beginning today. With the Monday holiday, Treasury will go for both 3 and 10yr notes today at 11:30am and 1pm respectively. The latter is of far greater interest to us mortgage-watching folks. 3yr auctions tend to have almost no impact on the longer-end of the yield curve that MBS tend to follow.

The technical landscape remains in sideways shape and we continue to wait for signs of deeper commitment from bond buyers before getting our hopes up. Read virtually any “Day Ahead” from the past week for more on that.

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