On today’s show we’re looking at the trajectory of interest rates for the coming months. This is widely covered in the mainstream news. If we only repeated what you could read in the Wall Street Journal, or on CNBC then this show would not be adding any value. So we’re going to dig a bit deeper into the analysis of the Fed Chairman’s remarks to the Senate Finance Committee earlier this week to make sense of what it means for real estate investors.

There were two major items of business at the Senate Finance Committee meeting this time around. #1 was to get the economic update and statement from the federal reserve chairman Jerome Powell. Second was to confirm Janet Yellen as Treasury Secretary. Janet Yellen was chair of the Fed before the appointment of Jerome Powell. So she is interacting with her counterpart in the Fed from the perspective of someone who used to occupy that chair.

When Janet Yellen was chair of the fed, she was beating the drum about the need to print money to keep the economy healthy. Now as Treasury Secretary, she’s beating that drum even louder even before being formally confirmed in the position.

Even before the Senate Finance Committee meeting, we have been seeing a lot of market activity.

The low interest rate environment is driving demand for refinancing of debt into lower cost debt. I can tell you from conversations I’m having with lenders that their origination desks are over-flowing with demand for refinances. This is true a traditional banks, commercial lenders, and even the loan insurers like Fannie Mae, Freddie Mac and HUD.

The department of housing and urban development divides the nation into regions and services loan requests out of their regional offices.

I’m hearing that the HUD office in Fort Worth Texas has such a backlog that they will not even assign an analyst to look at a file for three weeks after receipt of an application. The delay in the San Francisco office is now more than 6 weeks before they will even look at a new file.

Achieving inflation that averages 2 percent over time helps ensure that longer-term inflation expectations remain well anchored at the FOMC’s longer-run 2 percent objective. Hence, following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.

So this means that they’re going to hold interest rates low even once inflation is shown to be above the 2% target for a period of time. They reiterated the intention to continue the current stimulus until late into 2021 and likely into 2022.

Fed Chairman Jerome Powell said strong demand is driving Treasury bill yields close to zero.

“It’s a lot of demand for short-term,” said Powell. “There’s a lot of liquidity, and people want to store it” in Treasury bills.

Powell said Treasury instruments are the concern of the Treasury Department, and the Fed is more concerned about keeping its target fed funds rate in its targeted range of zero to 0.25%. So he recognized where the extra cash is ending up, and basically said that it’s Janet Yellen’s problem to issue the treasury notes.

Paradoxically, the yield on the longer term treasury notes has been rising in recent weeks. It’s an indication that the sentiment of inflation remaining low is not being widely accepted by the market. The dollar is losing value against major currencies and the yield for US Treasuries is going up.

The reason we focus on the 10 year treasury is that most permanent financing interest rates are based on a rate lock that is tied to the yield on the 10 year treasury.

The benchmark Treasury note jumped above 1.50% on Thursday afternoon after investors showed weak demand for $62 billion of 7-year notes. The 10-year note yield climbed 15 basis points to 1.54%.