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Lock ahead of the Fed

By Holden Lewis · Bankrate.com
Tuesday, November 2, 2010
Posted: 9 am ET

The Federal Reserve's rate-setting committee meets today and tomorrow. Around 2:15 p.m. eastern time tomorrow, the Fed will issue its latest rate policy statement, and it will move markets. The prudent thing to do is lock your mortgage rate before tomorrow afternoon.

It is quite possible that long-term interest rates will go down after the Fed announcement. But it's also possible that rates will rise. At times like this, when markets threaten volatility, I think it's best to take shelter by locking your mortgage rate if you can.

Most observers expect the Fed to announce another round of "quantitative easing," or purchases of billions of dollars' worth of bonds. The Fed's intent will be to force interest rates lower. But if the Fed's explanation is worded clumsily, it could spook investors, leading to a rise in rates, albeit temporary.

On Friday morning, we get another gust of volatility when the October employment report is released. The consensus prediction is that employment will rise marginally, by about 500 people per state, and that the unemployment rate will creep up a tenth of a percentage point, to 9.7 percent. If the report yields better results than that, a rise in mortgage rates is possible. I doubt that'll happen -- I'm bearish about employment -- but you can't rule out the possibility of an encouraging jobs report.

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5 Comments
Alice Stinch
December 20, 2010 at 1:48 am

Response to Greg Sopin November 03, 2010 at 11:33 am
"Why is it prudent to "lock ahead of the Fed" if you anticipate easing that would lower mortgage interest rates. And is the only risk you see that it will be "clumsily worded"? "...leading to a rise in rates, albeit temporarily.."

Understanding that there is risk in locking and risk in waiting, with both having a potential lost opportunity, the stated beliefs in the Fed's immediate course, would seem to support the prudence and potential reward in waiting."

To Mr. Sopin...Sometimes taking risks is the only way we gain...I have done it about 3 times locking in rates, each time lower. One has to take the risks to talk risks. The way I look at it, the Fed's are out for the Fed's (not us). Do you take risks Mr. Sopin, and if so, have you REALLY gotten anything from all this alleged knowledge you seem to be sharing on this forum. By the way, if you lock in a low rate, it's locked in, and not temporarily. I know as I have done it. How about you?

Show me what you have done that has been rewarding financially in the...let's say...the last 20 years.

bob lachman
November 04, 2010 at 1:15 am

Holden, If you're right only one third of the time it would be prudent to not follow your advice because in not following your advice I would be right two thirds of the time. By the way I am a fan of your blog. Right or wrong advice aside You write clearly, interestingly,honestly and with humble humor. Thanks

Greg Sopin
November 03, 2010 at 11:57 am

I hear you saying that prediction is not an easy.

But if your prediction is knowlege-based and better than a coin flip, then it is only prudent to act on your conviction.

Being right one in three may be terrific if you nail the long term directional shifts, but are good enough to ignore interim up and down short-term volatility.

Thanks for your thought provoking response.

Holden Lewis
November 03, 2010 at 11:35 am

In the last year I've guessed the direction of mortgage rates correctly about one-third of the time. Knowing that, what's the prudent course of action if I think rates will go down, or that they'll rise only temporarily?

Greg Sopin
November 03, 2010 at 11:33 am

Why is it prudent to "lock ahead of the Fed" if you anticipate easing that would lower mortgage interest rates. And is the only risk you see that it will be "clumsily worded"? "...leading to a rise in rates, albeit temporarily.."

Understanding that there is risk in locking and risk in waiting, with both having a potential lost opportunity, the stated beliefs in the Fed's immediate course, would seem to support the prudence and potential reward in waiting.