Wednesday's Fed meeting contained no major surprises and the reaction was positive for mortgage rates. Weaker than expected economic growth data also was favorable for rates. As a result, mortgage rates ended the week lower.
As expected, the Fed meeting concluded with no change in the federal funds rate. The Fed statement modestly upgraded its assessment of the U.S. economy. In particular, the labor market has "strengthened" and consumer spending has been "growing strongly." However, the overall tone of the statement was less hawkish than investors had expected, and mortgage rates improved a little after its release.
Mortgage rates also improved following the release of Friday's disappointing GDP data. Second quarter gross domestic product (GDP), the broadest measure of economic growth, grew at a rate of just 1.2% in the second quarter, far below the consensus of 2.6%. This was the third straight quarter of growth below 2.0%. Consumer spending was strong during the second quarter, but business investment was weak.
Recent reports showed that the housing sector remained a bright spot for the U.S. economy. Similar to the results for previously owned homes, sales of new homes rose in June to the best levels in about eight years. The pending home sales report showed a small increase in June. This report measures contracts signed for the purchase of previously owned homes. Once again, these two reports likely would have been even better except for a low supply of homes available for sale.
Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will come out on Monday. The core PCE price index, the Fed's preferred inflation indicator, will be released on Tuesday. The ISM national services index will come out on Wednesday. In addition, the Bank of England meeting announcement could influence U.S. mortgage rates on Thursday.
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