Trump: Tax Cut Proposal Coming Soon
President Trump commented last Thursday that he is expecting to give initial details on proposed tax cuts in two to three weeks. Mortgage rates moved a little higher after the comment. There are a couple of reasons why tax cuts are viewed as negative for mortgage rates. The first is that tax cuts increase the wealth of the affected individuals or businesses. As they spend some of this money, it boosts economic activity, which in turn raises the outlook for future inflation. The second reason is that tax cuts increase the budget deficit, at least initially. This means that the government has to issue more Treasury bonds to fund the deficit. The added supply reduces the value of bonds, including MBS—which results in higher mortgage rates .
The report on Consumer Sentiment released on Friday showed that consumers remained optimistic about economic activity. While the reading was a little below the 13-year high seen last month, it was still quite high by historical standards. This survey from the University of Michigan measures the level of optimism or pessimism about current and future economic conditions.
Week Ahead
Factors: Retail Sales will be released on Wednesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI), a widely followed monthly inflation report, also will come out on Wednesday. CPI looks at the price change for goods and services which are purchased by consumers.
Volatility: Moderate
Trend: Slightly Higher ↑
For specific rate information, please contact a Tradition Mortgage loan officer.