With a Fed meeting, the selection of the next Fed Chair, details about tax reform, and an Employment report, this week had the potential to be extremely volatile. Other than disappointing wage growth, however, there were no significant surprises in any of these areas. Mortgage rates finished the week a little lower.
As expected, U.S. jobs bounced back in October from September's hurricane-related losses. The economy added 261,000 jobs in October. Combined with upward revisions of 90,000 jobs to the results for prior months, the total gains were close to the expected levels. The average monthly job gains over the past three months were 162K, which is in line with the levels seen earlier in the year. The unemployment rate, which is based on a separate survey, unexpectedly declined from 4.2% to 4.1%, which was the lowest level since December 2000. Since the drop was due to a large number of people choosing to leave the labor force rather than more people finding jobs, this was not viewed as a sign of strength.
After a couple of months of strong readings, it looked like wage growth was trending higher. However, the October results appear to indicate otherwise. While the consensus was for an annual rate of wage growth of 2.7% in October, it was just 2.4% higher than a year ago, down from a revised annual rate of 2.8% in September.
Two Fed-related events in focus this week provided no surprises and caused little reaction. At Wednesday's meeting, the Fed held the federal funds rate steady and made no significant change to the language in its statement. The statement noted that "economic activity has been rising at a solid rate despite hurricane-related disruptions." On Thursday, President Trump selected Jerome Powell as his nominee to serve as Fed Chair beginning in February. Under Powell, it is expected that the Fed would maintain a course for monetary policy similar to the current one.
Following the Presidential election in November, the stock market and mortgage rates rose due to expected policy changes under the Trump administration which would boost economic growth. One big component of that was tax reform. In recent weeks, progress has been made in this area, and mortgage rates have reacted. In general, reforms which appear more stimulative for the economy have been negative for mortgage rates, while less stimulative ones have been positive. On Wednesday, the House released additional details about its tax plan. The details were in line with expectations, however, and the impact on mortgage rates was minor.
In contrast to this week, next week will be marked by a lack of any big events or economic reports. The JOLTS report, measuring job openings and labor turnover rates, will be released on Tuesday. There will be Treasury auctions on Wednesday and Thursday which could influence mortgage rates. Beyond that, investors will be keeping an eye on the progress on tax reform.
source: Mortgage Time Newsletter