Mixed Messages from Fed

Aug 19 2016

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The economic data had little impact on mortgage rates over the past week. Mixed messages from the Fed caused some movement. For the week, mortgage rates ended just slightly higher.

Mortgage rates responded to comments from several Fed officials, creating some volatility during the week. By the end of the week, though, investors were left with the impression that Fed officials have a wide range of opinions about the appropriate timing to tighten monetary policy. As a result, there was little net change in either the outlook for future Fed policy or in mortgage rates. 

The mixed messages began on Tuesday with a speech from the Fed's Dudley that was unexpectedly hawkish. He suggested that Fed rate hikes may come sooner than investors expect. Wednesday's release of the minutes from the July 24 Fed meeting revealed conflicting views on the outlook for inflation and the degree of support for tighter monetary policy. Thursday's comments from the Fed's Bullard were very dovish. He said that one federal funds rate hike is all that will be needed for the "foreseeable future." 

The most recent reading for a widely followed inflation indicator, the core consumer price index (CPI), revealed that core inflation was 2.2% higher than a year ago. Core inflation excludes the volatile food and energy components. Many investors prefer to look at core inflation because it provides a clearer indication of the underlying trend. In 2016, core CPI has held close to the current level all year.

Looking ahead, the report on new home sales will come out on Tuesday and the report on existing home sales on Wednesday. Durable orders, an important indicator of economic activity, will be released on Thursday. The second estimate of second quarter GDP, the broadest measure of economic activity, will come out on Friday. In addition, Fed Chair Yellen will be speaking at Jackson Hole on Friday. Investors will be looking for additional guidance about future Fed policy.

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Topics: mortgage news, economic data, monetary policy, mortgage rates, new home sales

Dovish Speech from Yellen

Apr 04 2016

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Despite the release of a wide range of major economic data, a speech from Fed Chair Yellen had the biggest influence on mortgage rates over the past week. Her comments were favorable for both stocks and bonds, and mortgage rates ended the week lower. 

Since the March 16 Fed meeting, several Fed officials have expressed support for tightening monetary policy at a more rapid pace. In Tuesday's speech, Yellen laid out reasons that the Fed should take a very gradual approach to tightening monetary policy. According to Yellen, economic troubles in other countries pose downside risks to the U.S. economy. She also said that it is unclear if the recent pickup in core inflation will be sustained or whether it was due to temporary factors. Yellen's message about an outlook for low inflation and a longer expected timeline for tightening by the Fed was good news for mortgage rates.

There were few surprises in the important monthly employment report released on Friday, and it caused little reaction. Against a consensus forecast of 210K, the economy added 215K jobs in March. This is close to the average monthly pace seen over the past year. 

The unemployment rate edged up from 4.9% to 5.0%. The higher rate was mostly due to people entering the workforce, which is a sign of strength. Average hourly earnings, an indicator of wage growth, rose 0.3% from February, matching expectations. The vast majority of the job gains came in the service sector, while manufacturing continued to shed jobs.

Looking ahead, Factory Orders will be released on Monday. The ISM national services index and the JOLTS report will come out on Tuesday. JOLTS measures job openings and labor turnover rates. The Fed minutes from the March 16 meeting will be released on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets.

Topics: employment report, Pink Unicorn, economic data, monetary policy, mortgage rates, stocks and bond

Fed Officials Split

Mar 28 2016

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This week's economic data contained few surprises, and the attacks in Brussels had little impact on U.S. financial markets. As a result, mortgage rates ended the week with little change. 

At the Fed meeting on March 16, nine Fed officials voted in favor of holding the federal funds rate steady and just one supported a rate hike. Fed Chair Yellen suggested that the Fed should proceed cautiously in tightening monetary policy to see the effect of overseas weakness on the U.S. economy.  

Since the meeting, however, several Fed officials have supported tighter monetary policy, sending a mixed message to investors. These officials feel that the performance of the U.S. economy may justify a rate hike as soon as the next Fed meeting on April 27. Investors will be closely monitoring comments from other Fed officials to determine how much support there is for these more hawkish views.

The headline numbers for February home sales released this week were mixed. Sales of existing homes fell 7% from January, while sales of newly built homes showed an increase of 2%. The details show that the fall in existing home sales was from an elevated January level, and the rise of new home sales was from an unusually low level in January. 

Both measures have been volatile lately. An average of home sales over a multiple month period provides a clearer picture of the underlying trend, and the three-month average has shown steady improvement over the last few months. 

Looking ahead, mortgage-backed securities (MBS) markets will be closed tomorrow for Good Friday. Next week, 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, Pending Home Sales and Core PCE inflation will be released on Monday. The ISM national manufacturing index will come out on Friday.

Topics: Ali Vafai, The Money Source, The Money Source Inc., mortgage news, employment report, Pink Unicorn, employment rate, home sales, monetary policy, mortgage rates

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