This week’s FOMC meeting has adjourned with no change to key short-term interest rates, as expected. The language in the post-meeting statement indicated that the Fed is likely to leave key rates at their current levels well after the current bond buying program ends, which is expected to terminate at the October FOMC meeting. That helps keep expectations for a rate hike to come later in 2015 than earlier.
Today’s Fed schedule also brought revised economic projections that showed a downward revision to overall economic growth for this year and next year. Other benchmarks were also revised but most glaring was the GDP figure that is our key measurement of economic activity. The Fed also detailed an exit plan for their balance sheet, specifically that there currently isn’t a set plan to sell mortgage-related bonds. Many feared that when the Fed starts selling their holdings, the supply hitting the market would drive mortgage rates higher. So we can consider this bit of clearly favorable news for future mortgage shoppers.
Overall, the stock and bond markets changed directions multiple times after the meeting adjourned. The stock markets fell into negative ground but the Dow and Nasdaq both closed in positive territory and very close to their pre-adjournment levels. The bond market didn’t fare so well. We saw a decent amount of volatility in trading before closing in negative territory at 2.60%. Along the way, several lenders revised pricing higher by approximately .125 of a discount point from this morning’s rates.
August’s Consumer Price Index (CPI) was today’s only relevant economic data. It was posted at 8:30 AM ET, revealing a 0.2% decline in the overall reading and no change in the more important core data. Both readings were weaker than forecasts, indicating consumer-level inflation remained subdued and softer than analysts thought. That is good news for bonds because rising inflation makes longer term securities less appealing to investors.
Tomorrow has two minor pieces of economic data, both at 8:30 AM ET. The first is last week’s unemployment numbers. They are expected to show that 305,000 new claims for unemployment benefits were filed last week, down from 315,000 of the previous week. Rising initial claims indicates employment sector weakness, so the higher the number of initial claims the better the news it is for bonds and mortgage rates.
Also tomorrow is the release of August’s Housing Starts at 8:30 AM ET. This report will probably not have much of an impact on the bond market or mortgage rates. It gives us a measurement of housing sector strength and mortgage credit demand by tracking construction starts of new homes, but is usually considered to be of low importance to the financial and mortgage markets. It is expected to show a noticeable decline in new home starts between July and August. I believe we need to see a significant surprise in this data for it to have a noticeable impact on tomorrow’s mortgage rates.