Little Change in Mortgage Rates
It was a volatile week ahead of the Fed meeting on September 21, but there was little net changes in mortgage rates. Shifts in expectations for Fed policy were the main influence on stocks and bonds. A wide range of economic data had little impact.
Disappointing Retail Sales
The last major report on economic activity before the Fed meeting was disappointing. In August, retail sales fell 0.3% from July. Excluding the volatile auto component, retail sales also fell far short of the expected levels with a small decline from July. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator.
After a slow start to the year, retail sales, excluding autos, picked up nicely and posted solid gains for four months. They have slowed again during the last two months though, leaving investors and Fed officials wondering what future data will reveal.
Keeping Things in Check
The Consumer Price Index (CPI), a widely followed monthly inflation report, revealed higher than expected levels of overall inflation and core inflation. CPI looks at teh price change for goods and services which are sold to consumers. Core CPI excludes the volatile food and energy components, which provides a better sense of the underlying trend. Core inflation in August was 2.3% higher than a year ago – up from a 2.2% annual rate last month.
While the weaker than expected retail sales data favors a slower pace of Fed rate hikes, the inflation data supports the opposite, tighter monetary policy. These offsetting influences caused little net change in investor expectations for future Fed policy. Investors see just a small chance that the Fed will raise the federal funds rate at the next meeting on September 21.
TUESDAY: Housing Starts: The Housing Starts Index reports the number of residential homes construction has begun on during each month. It is a seasonally adjusted annualized rate of houses started, taken from a sample of 844 out of 17,000 permit sites. The monthly national average is broken down by region, and shows the breadth of change. The report may be used as an indicator of future national new home sales and mortgage origination volume.
WEDNESDAY: **FED MEETING** The Fed statement and press conference often causes a large reaction in financial markets
THURSDAY: Existing Home Sales: The Existing Home Sales Index reports the number of existing homes sold, expressed on an annual basis. The sales of existing homes account for about 85% to 90% of all houses sold and the total volume indicates housing demand. Existing home sales are based on transaction closings. In contrast, new home sales are based on contracts signed. The report is a strong predictor of future national mortgage origination volume and for near term spending for housing-related items.
Information provided by MBS Quoteline: http://www.mbsquoteline.com/newsletter/view/214/19977/0/3
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