Take a Hike? Fed Says No
Heading into Thursday’s Fed announcement, investors were split about whether the Fed would raise the federal funds rate for the first time since 2006. The Fed chose to make no change.
The Fed’s Statement cited concerns that weaker global economic growth could exert downward pressure on U.S. inflation rates. Fed officials lowered their forecasts for inflation for the next several years. The comments gave further proof of the changing dynamics that impact the Fed’s decision making and our interest rates in the US. Global factors, such as weakness in the China economy, are playing a larger role.
After rising earlier in the week , mortgage rates fell back down following the comments from the Fed. They fell because expected future inflation levels are a key component in setting mortgage rates. The Fed’s guidance lower made investors willing to accept lower rates.
In addition, investors were comforted by another inflation reading which was consistent with the Fed’s guidance. The consumer price index data (CPI) released this week revealed that core CPI inflation, was again just 1.8% higher than a year ago. Inflation has held steady at low levels all year.
Week Ahead
Factors: Existing Home Sales will be released on Monday. Durable Orders, an important indicator of economic activity, and New Home Sales will come out on Thursday. The third estimate for second quarter GDP will be released on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
Volatility: High
Trend: Flat
Check back weekly for the mortgage industry update.