Rates Remain Low on News of ECB Stimulus
The European Central Bank (ECB) added to its stimulus program to help boost economic growth and raise inflation. The actions included cutting key interest rates and increasing the size of its asset purchase program. Increased demand for bonds from the ECB helps keep down yields around the world, including U.S. mortgage-backed securities (MBS). These measures were essentially in line with investor expectations, however, so their effect on mortgage rates had already been factored in. Putting a little rain on the otherwise sun-filled parade, the ECB also unexpectedly announced other changes designed to help the banking sector, which helped the stock market rally at the expense of mortgage bonds. Good news is that rates remained low, the bad news is that they didn’t go down any further.
While recent readings have shown that inflation is rising, one area has continued to exert downward pressure. The cost of imported goods dropped in February for the eighth straight month. A big reason for this has been the decline in the price of oil. Even excluding oil, the cost of other imported goods has been dropping. Lower prices for imported goods reduce inflation, which is positive for mortgage rates.
Factors: There will be a Fed meeting and press conference on Wednesday. No change in the federal funds rate is expected, but the comments from the Fed could have a significant impact. Before that, Retail Sales will be released on Tuesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. CPI will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, looks at the price change for goods and services which are sold to consumers.
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