Hi Bill Bodnar here from the Mortgage Market Guide.

Thanks for tuning in to our MMG recap, so this week it was all about the Fed. Now the Fed came out, of course, they didn't raise rates. It wasn't expected, but their statement, believe it or not, was even more dovish than the market was anticipating.

I think the some of the text wasn't a big change: You know they already committed to inflation being low and that that was not a surprise. They did say that the economy is slowing a bit.

But I think the big thing is they removed a rate hike off the table for 2019. Now if we go back just a few months, back in October, the Fed was on a path to raise rates three times in 2019. And it was happening regardless of the data, so this is a big change.

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So we're not going see a rate hike in 2019, which is you know, giving stocks and the bond market a sigh of relief. But what they also said is that they forecast one next year. So if you're sitting here in the mortgage business, we're looking at maybe one rate hike between now and the end of next year, which is really a remarkable big change. That's why we're seeing the bond market move higher.

Stocks even move higher a bit, and the other thing that they mentioned is the balance sheet. You know they have seven trillion-dollars-worth of bonds mortgage-backed securities. They are not going to reinvest the money back into those as those bonds roll off those mortgage bonds.

[caption id="attachment_11177" align="alignleft" width="300"] Bodnar: Wage growth is accelerating at 3 percent to four percent, which can cause inflation.[/caption]

They will be reinvested into the Treasury market, so the Fed ultimately isn't allowing mortgage-backed securities to roll up their books not a big negative for the mortgage bond market. But I think you know the fact that the Fed is, you know removing that tightening of that roll off of the balance sheet again as a positive for the financial markets.

What we get out of this week is that the complacency tone that we've discussed. When we talk about complacency, what do we mean? You know the lack of volatility it's being spurred by the fact that the Fed, interest rates and inflation are not a threat.

Rates aren't going higher, inflation is not a problem for now. Rates will kind of be where we are right now, which you know if you take a look at the chart. Basically, one-year highs in price, one-year lows in rates, and this is a little bit of a breakout that we're trying to make heading into the weekend.

It’ll be interesting to see if it sticks and at the same time, they're watching the yield on the 10-year note, which had a real bad problem--impossible to get beneath 260. You know down the low 250s as we speak, so really good story heading into the spring housing market.

But what we must remember is that complacency is always followed by volatility right, and so it will change. And so the one thing you know we said: Inflation is not a threat; that's the one threat that we're watching here at the Mortgage Market Guide because we're watching commodity prices up anywhere from 10 percent to 15 percent.

So far this year we're watching wages running at three point to four percent, year-over-year, the hottest in a decade. And that can be inflationary and I'll tell you where one solid print on inflation that would absolutely spook the bond market, so you know I would be talking to clients. I would certainly want to be advising them you know of this good story heading into the spring housing market but I wouldn’t remain complacent for long, because this story will change.

And guess what, next week there are a couple of big numbers to look at: No.1 GDP will be out next week as well as the personal consumption expenditure index, which is the fed’s favorite gauge on inflation. How that number goes is something that the Fed watches carefully. But it’s a number that can move the market because inflation is the big thing to watch right now.

Thank you for tuning in to the MMG recap, and we'll be back at it next week.

Bye for now.