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Fed Tightens

For a couple of weeks prior to Wednesday's Fed meeting, comments from Fed officials and stronger than expected economic data caused mortgage rates to rise. The outcome of the Fed meeting was viewed as relatively favorable for mortgage rates, however. Rates reversed some of their rise and ended the week lower.

As widely expected, the Fed raised the federal funds rate by 25 basis points. To explain the Fed's reason for the rate hike, Fed Chair Yellen said that "the simple message is the economy's doing well." According to the statement, another factor was that inflation was "moving close" to the Fed's target level of 2% after falling short for years. Regarding the Fed's massive holdings of mortgage-backed securities (MBS), there was no change in language in the statement, and Yellen said that no decisions about the portfolio had been reached yet. The pace of rate hikes projected by Fed officials remained virtually unchanged from the prior forecasts released in December. Mortgage rates had risen before the meeting on concerns about a faster pace of tightening, so they recovered partly when these fears were not realized.

The recently released data on home building was very encouraging. In February, single-family housing starts and building permits both rose to the highest levels since 2007. In addition, the March National Association of Home Builders (NAHB) housing index showed that home builder confidence jumped to the highest level in over a decade. Increased home building activity is great news for the housing market given the current lack of inventory in many regions. 



Week Ahead

Looking ahead, more housing data will take center stage during a light week for economic reports. Existing Home Sales will be released on Wednesday, and New Home Sales will come out on Thursday. In addition, Durable Orders, an important indicator of economic activity, will be released on Friday. 


 source: Mortgage Time Newsletter

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