WEDNESDAY AFTERNOON UPDATE: This week’s FOMC meeting has adjourned with no change to key short-term interest rates. This was widely expected but market participants were looking for any indication of when the first move will come. They apparently found what they were looking for with many analysts predicting the first rate hike coming at September’s FOMC meeting, which would be followed by another before the end of the year. Fed Chair Janet Yellen gave us plenty of tidbits to digest, but none can be called significantly surprising. She said the labor market continues to improve and inflation is below their preference, however, they believe it will get stronger.
The net result on the markets has been mixed. Stocks are higher than their pre-adjournment levels but are close to where they were this morning. The Dow is currently up 49 points while the Nasdaq is up 16 points. The bond market’s reaction is more noticeable. It currently is up 1/32 (2.30%), erasing this morning’s losses. This should cause many lenders to improve rates by approximately .125 – .250 of a discount point from this morning’s rate sheet.
Tomorrow morning has three pieces of economic data that may influence mortgage rates, although one is more important than the others. May’s Consumer Price Index (CPI) will kick off the day’s scheduled at 8:30 AM ET. This index gives us a very important measurement of inflationary pressures at the consumer level of the economy. As with last week’s Producer Price Index (PPI), there are two readings that analysts watch. Forecasts are calling for a 0.5% rise in the overall reading and a 0.2% increase in the core data. The core reading is the more important of the two because it excludes more volatile food and energy prices, leaving a more stable measure of inflation. Indexes like this are important to the bond market and mortgage rates because rising inflation makes long-term securities’ future interest payments less valuable to investors. Therefore, we would like to see weaker than expected readings, indicating inflationary pressures are softer than analysts are thinking. The weaker the readings, the better the news it is for mortgage rates.
Also at 8:30 AM will be the release of last week’s unemployment numbers. They are expected to show that 276,000 new claims for unemployment benefits were filed last week. This would be a decline from the previous week’s 279,000, indicating the employment sector strengthened a little. Ideally, we would like to see a large increase in new claims, hinting at a softening employment sector. It is worth noting though that this is only a weekly snapshot, so it often takes a wide variance from forecasts for the data to noticeably impact mortgage pricing.
Lastly, the Conference Board will release May’s Leading Economic Indicators (LEI) at 10:00 AM ET. This index attempts to predict economic activity over the next three to six months. Good news for mortgage rates would be a decline in this index, but it is expected to show a 0.4% increase from April’s reading. This means it is predicting an increase in economic growth over the next several months. Since this report is not considered to be of high importance, I don’t see it causing too much movement in rates regardless if it shows a strong or weak reading.