WEDNESDAY AFTERNOON UPDATE :
This week’s FOMC meeting has adjourned with no adjustment to key short-term interest rates, as expected. In the post-meeting statement the Fed acknowledged the economy and labor market are not where they need to be to raise rates. The statement did not rule out a hike at June’s FOMC meeting that many analysts had targeted as the first move, but the softer economic data and inflation readings that are below their preferred levels make it quite possible that the first move won’t come until later in the year.
Overall, there was nothing too significant or surprising in the statement. The major stock indexes aren’t far off from their morning levels with the Dow down 69 points and the Nasdaq down 23 points. The bond market is currently down 11/32 (2.04%), but I would not be surprised to see some lenders improve rates slightly before the end of the day since the markets appear to have been expecting unfavorable news from the FOMC statement.
This morning did have an extremely important economic report released. The preliminary version of the 1st Quarter Gross Domestic Product (GDP) reading was posted at 8:30 AM ET. It showed that the economy grew at an annual rate of 0.2% that was well short of forecasts. Analysts were expecting to see a 1.0% annual rate, meaning that economy was not nearly as strong as many had predicted during the first three months of the year. That is very good news for bonds and mortgage rates. However, it is believed that bad weather and other unexpected factors skewed the reading lower.
Tomorrow has three pieces of data that may influence mortgage rates. With the FOMC meeting behind us now, more weak economic data should have a more predictable impact on bonds and mortgage rates. The first of the three is last week’s unemployment figures at 8:30 AM. They are expected to show that 290,000 new claims for unemployment benefits were field last week, down from the previous week’s 295,000. This data doesn’t usually cause much movement in rates because it is only a weekly snapshot, but it does have the potential if it shows a wide variance from forecasts.
The second is March’s Personal Income and Outlays data also at 8:30 AM ET. It helps us measure consumers’ ability to spend and current spending habits. This information is important to the mortgage market due to the influence that consumer spending-related data has on the financial markets. If a consumer’s income is rising, they have the ability to make additional purchases in the near future, fueling economic growth. This raises inflation concerns and has a negative impact on the bond market and mortgage rates. Current forecasts are calling for a 0.2% increase in the income reading and a 0.5% rise in spending. If we see smaller than expected readings, the bond market should open higher tomorrow morning.
Also early tomorrow is the 1st Quarter Employment Cost Index (ECI). This index tracks employer costs for wages and benefits, giving us a measurement of wage-inflation. If it shows a large increase, we may see wage inflation concerns rise as employers will need to pass those increases into the pricing of their products and services. That would cause the bond market to fall and mortgage rates to rise. A smaller than expected increase would be good news for the bond market and mortgage pricing although I doubt this report will affect mortgage rates. Current forecasts are showing a rise of 0.6%.