What a difference a day makes!! Yesterday we had a deep drop in mortgage backed securities and today we had an equally steep explosion upwards. Maybe this bounce will actually be enough to start us back on that upward trend that means interest rates will come DOWN. It will take more than a one day rise, but... it's a start.
The jobs report has been touted as an indicator of recession... maybe, maybe not. Typically a recession requires that we have a major problem with jobs as a whole. Right now, we still have an unemployment rate of less than 5%. I know - we've had such a low unemployment rate for so long that we no longer appreciate how remarkable it is. But if you recall, that rate was much higher for the bulk of the Clinton administration and for the first part of the Bush Administration. We were well past the events of 2001 before we really started to see the unemployment rate drop. Even now a rate of 4.8% is amazing, but we have become spoiled by the 4.6% - 4.7% these past several years.
So, why the hoopla about the jobs numbers today? The markets reacted to this increase in unemployment, while it is slight, out of the fear that it could be the first of the slide upwards in unemployment. It's not a worry now, but we seem to be worrying that it could be something to worry about in the future. (That made my head spin to type) Remember, the markets often respond more to the perception of a problem than they do to the actual problem. By the time the problem has actually arrived on the scene, the markets have panicked, overcompensated and are relieved that the problem is not as bad as they had feared.
This morning the Federal Reserve Board freed up more money that it pumped into the system. The hope is that this will allow banks a bit more room to maneuver. That, in combination with the continued worries over recession, helped to ease pressure on mortgage backed securities and that in turn eased pressure on mortgage rates. I literally saw a full .25% improvement in rates from last night to this morning. What a great end to a rocky week.
So... head into the weekend with a blithe heart and we'll catch up again on Monday, when the adventure will continue!
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