Roughly 3 months after the Fed's last stellar opportunity to enact its long-anticipated rate hike, we come to meeting that is all but certain to host their unfinished business.  The Fed has the green light, and moreover, no deterrent on the same scale as the late August global economic drama.  The absence of a rate hike this week would be an utter calamity, because the Fed's forward guidance (the stuff they say about where they think rates will go and when) would become utterly useless.   Folks would question their motives and intelligence.  Investors would lose a lot of confidence in the system.  In short, all hell would break loose.

Such hypothetical scenarios are moot, however, because until and unless we see such a crazy turn of events, they're too crazy to give any legitimate consideration. We'd do much better to discuss what the formality of the hike means at this point.

You'll be happy to know that, in the bigger picture, the hike is not the end of the world for mortgage rates.  While the last several "hiking cycles' also coincided with longer-term rates moving higher, the last cycle (that began in 2004), was the most gradual of those.  There we saw rates actually move lower at first and ultimately hold fairly flat by the end of the cycle. 

2015-12-14 fed vs 10s

There can certainly be some market volatility in the response, but no one really knows what to expect from that.  What we do know is that domestic bond markets have been doing as much as possible to "price in" a Fed rate hike.  They'll require additional convincing if they're going to be pushed higher in the sort of way that many financial news outlets espouse.  Ironically, a higher Fed Funds rate makes it increasingly difficult for the economy to generate the sort of momentum required scare up higher long term rates.  But then again, cooling the economy is sort of the point of a Fed Funds hike anyway.

Then there are the longer term trends in stocks and bonds.  As has been a popular topic of conversation from as early as September, what would it mean for bond markets if stocks ended up taking a big turn at the recent highs (the ones they can't seem to get back above)?  The flight of capital out of stocks has to go somewhere.  Maybe some would go to bonds...

2015-12-14 S&P

Then there are bonds themselves.  Never say never, but I will say that it's been a historically bad idea to bet against longer term momentum for that past 30 years that bonds have rallied.  In the following chart, notice that every major consolidation in 10yr yields (like the one we've just seen), has been broken with a move lower in yields. 

2015-12-14 consolidations

While there is other economic data on the calendar this week, the focus is on Wednesday afternoon's Fed events.  These include the announcement itself as well as the release of the Fed's economic forecasts and the Press Conference with Fed Chair Yellen.

MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
FNMA 3.0
100-15 : +0-00
FNMA 3.5
103-17 : +0-00
FNMA 4.0
105-31 : +0-00
2 YR
0.9150 : +0.0360
10 YR
2.1430 : +0.0107
30 YR
2.8790 : +0.0027
Pricing as of 12/14/15 7:30AMEST

Tomorrow's Economic Calendar
Time Event Period Forecast Prior
Tuesday, Dec 15
8:30 Core CPI index, sa * Nov 243.70
8:30 Core CPI mm, sa (%)* Nov 0.2 0.2
8:30 NY Fed manufacturing * Dec -6.00 -10.74
10:00 NAHB housing market indx * Dec 63 62
Wednesday, Dec 16
7:00 Mortgage Market Index w/e 424.1
8:30 Housing starts number mm (ml)* Nov 1.140 1.060
8:30 Building permits: number (ml)* Nov 1.150 1.161
9:15 Industrial output mm (%) Nov -0.1 -0.2
9:15 Capacity utilization mm (%) Nov 77.5 77.5
14:00 FOMC rate decision (%)* N/A 0.375
Thursday, Dec 17
8:30 Philly Fed Business Index * Dec 1.9 1.9
8:30 Initial Jobless Claims (k)* w/e 282