THURSDAY AFTERNOON UPDATE:
This week’s FOMC meeting has adjourned without a change to key short-term interest rates. The reasoning for the decision appears to be concerns about global economic conditions and financial stability in addition to subdued inflation here in the U.S. The post-meeting statement indicated that the labor and housing markets have improved and that the overall economy continues to grow at a moderate pace. It is still widely expected that a bump in the Fed’s primary lending rate will come later this year.
The Fed also adjusted their economic projections for this year along with 2016 and 2017. They appear to be a little more optimistic about our economy than previously estimated with the GDP projection revised upward and the unemployment rate downward for 2015. However, inflation still remains well below the 2.0% annual rate they prefer to see. That was a contributing factor to not making a move at this meeting. There are FOMC meetings set for October and December, so as we get closer there will be much anticipation and anxiety in the markets.
Overall, both stocks and bonds have been active following the news. Stocks have been up and down in a wide range but are currently mixed with the Dow down 18 points and the Nasdaq up 12 points. The bond market is in rally mode, up 26/32 (2.21%). This should improve this afternoon’s mortgage rates by approximately .375 of a discount point.
There were two minor pieces of economic data posted early this morning. August’s Housing Starts showed a 3.0% decline in new home groundbreakings compared to the 4.0% decline that was expected. However, a sizable revision to July’s figure skewed the month’s results. In addition, this is not a highly influential report, so it did not had much of an impact on this morning’s trading.
Also released this morning were week’s unemployment numbers. They showed that 264,000 new claims for unemployment benefits were filed last week, down from the previous week’s 275,000 initial filings. Analysts were expecting to see 275,000 last week also. This means the employment sector was a little stronger than thought, making the data slightly negative for bonds and mortgage rates. However, this is only a weekly update and has not played much of a role in today’s mortgage pricing.
Tomorrow does have a piece of economic data being released, but it does not carry much importance. I would not be surprised to see this afternoon’s rally carry into tomorrow’s trading. The economic report will come from the Conference Board who will post their Leading Economic Indicators (LEI) for August late tomorrow morning. It attempts to measure economic activity over the next three to six months. It is expected to show a 0.2% increase, meaning that it is predicting modest growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a small increase in mortgage rates, assuming today’s momentum does not affect tomorrow’s trading.