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Fed expects spending to rise; mortgage rates hopscotch; BofA 🤔

By February 1, 2021 No Comments

Fed expects “burst of spending” after people get vaccinated

Good news! The Federal Reserve is predicting a boost to the economy once more people get vaccinated. They met last week to discuss monetary policy, which right now is keeping rates so low,
and it looks like they will continue to pressure rates down as much as possible.

In his press conference following the meeting, however, Fed Chair Jay Powell showed concern that the economic recovery had moderated and stressed that it was more dangerous to do too little than to do too much to support the economy, said Kristina Hooper Chief Global Market Strategist at Invesco, on her LinkedIn page.

But that will change once the vaccine becomes more widely available.

“There’s also the possibility … that as the economy fully reopens, there’ll be a burst of spending because people will be enthusiastic that the pandemic is over, potentially, and that that could also create some upward pressure on inflation,” Powell said. “Now, again, we would see that as something likely to be transient and not to be very large. So the way we would react is we’re going to be patient.”

The recent market volatility last week also has been absorbed by the markets, Hooper added, advising for everyone to stay focused on the task at hand. “In my view, investors should not get distracted from focusing on their financial goals by worrying about what is going on in small portions of the investing universe, even if at times it can create broader volatility,” she said.

That’s good advice! And we all could use some of that!

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Mortgage rates will hopscotch through 2021

So now that we know the Fed has our back rates wise, how does monetary policy connect more directly to us? Great question, so glad you asked.

Greg McBride, CFA, chief financial analyst for Bankrate, forecasts favorable rates for borrowers in the days and weeks ahead. He cites several reasons, primarily the Fed action.

“After a spurt higher in the first half of January, bond yields and mortgage rates are poised to ease in the coming weeks as the reality of raging COVID cases and weak economic fundamentals sets in,” he says in this article.
Mortgage rates will likely go above 3% later this year, he added, but not stay above there for long.

“Rates will be volatile throughout 2021, moving lower on signs of economic weakness and higher on signs of vaccination progress in a return to normalcy,” McBride says. “Mortgage rates will hopscotch back and forth around the 3 percent threshold but end the year slightly above that mark at 3.1 percent.”

Several mortgage finance predictions generally conform to this view. For instance, in their most recent mortgage forecasts, Freddie Mac and Fannie Mae, respectively, expect the 30-year fixed mortgage rate to average 2.9 percent and 2.7 percent during 2021. The Mortgage Bankers Association, on the other hand, predicts an average rate of 3.4 percent this year.

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BofA: 70% of customers are fully digital

The pandemic drove everyone online and financial institutions that had yet to adopt a digital-first platform got slammed with requests for virtual services.

Bank of America was not one of them.

BofA said that 70% of Bank of America consumer client households and small business clients and 77% wealth management client households are digitally active.

Bank of America clients deposited 160 million checks using the mobile banking app in 2020. 

Last year, 84% of deposits were made through the company’s automated channels (mobile, online and ATMs), up from 78% the prior year.

“Our investments in mobile and online channels over the last 10 years, along with new and enhanced capabilities introduced throughout last year, enabled us to deliver more personalized experiences for each client through a balance of digital and in-person tools and services across their entire relationship with us,” said David Tyrie, head of digital at Bank of America in a report.

And it’s not just households that are more digital. Four out of five (81%) small business clients are now digitally active, and sales of products and solutions through digital channels increased to 24% last year, up from 10% in 2019.

Tyrie said the bank has no plans to let up on its digital developments. “Going forward, we’ll continue to innovate and to be there to support our clients – tailoring banking, lending and investing experiences to each individual, in real time,” Tyrie said.

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