WEDNESDAY AFTERNOON UPDATE:
The FOMC meeting has adjourned with an announcement of a 0.25% increase to key short-term rates. This is the first rate hike since June 2006 but was widely expected by most analysts and market participants. The Fed also released their economic projections for next year, showing they expect overall economic growth to be slightly stronger than previously thought (+2.4% vs 2.3%). They also indicated that the national unemployment rate is likely to stand at 4.7% next year, just below the previous estimate of 4.8%.
It appears that further rate increases are expected but at a gradual pace rather than right after each other. Inflation is still below the Fed’s ideal rate of 2.0%, which is actually good news for bonds. In her press conference Fed Chair Yellen reiterated that future increases will come at a gradual pace and that economic conditions will be monitored closely before making another move. She also stated that the Fed is confident that inflation will strengthen in the future.
The markets have responded favorably to the news with stocks outgaining bonds. The major indexes are higher than they were pre-announcement. The Dow is currently up 126 points while the Nasdaq has gained 42 points. The bond market is currently down 3/32 (2.28%) compared to 9/32 (2.30%) at this morning’s posting time. This could be enough of a move for some lenders to improve rates slightly this afternoon, but I don’t see a drastic change coming before the end of the day unless something bizarre happens as we head into close.
November’s Housing Starts report was posted at 8:30 AM ET this morning. The Commerce Department announced a 10.5% jump in new housing groundbreakings. This was stronger than what analysts were expecting to see, hinting at housing sector strength. The second report of the morning came at 9:15 AM ET when November’s Industrial Production data was released. It revealed a 0.6% decline in output at U.S. factories, mines and utilities. Forecasts were calling for a 0.1% decline, indicating the manufacturing sector may be softer than many had thought. That makes the data good news for mortgage rates. However, neither report had much of an impact on this morning’s trading or mortgage pricing.
Tomorrow has two minor pieces of economic data scheduled for release. The first is the weekly unemployment update at 8:30 AM ET. They are expected to show that 276,000 new claims for unemployment benefits were filed last week, down from 282,000 of the previous week. Rising claims are an indication of a weakening employment sector, so the higher the number of initial filings the better the news it is for mortgage shoppers. Although, since this is only a weekly snapshot, it usually takes a wide variance from forecasts for it to influence mortgage rates.
The final economic release of the week be November’s Leading Economic Indicators (LEI) from the Conference Board late Thursday morning. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a 0.1% increase, meaning that it is predicting slight economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than forecasts. The weaker the reading, the better the news it is for bonds and mortgage pricing.