Central bank meetings were the focus this week. Investors viewed the U.S. Fed meeting as positive for mortgage rates, while the European Central Bank meeting provided no surprises and had little impact. However, stronger than expected retail sales data offset the reaction to the Fed, and mortgage rates ended the week with little change.
Heading into Wednesday's Fed meeting, the 25 basis point increase in the federal funds rate was widely expected. Investors' main interest was in guidance from the Fed for the pace of future rate hikes. The Fed's forecast revealed a slightly faster pace of rate hikes in coming years. Given the recent strength of the economy, however, investors had been worried about a faster increase, and mortgage rates improved after the meeting.
The biggest economic report this week contained a major surprise to the upside. Excluding the volatile auto component, retail sales in November jumped 1.0% from October, which was well above the expected levels. Aside from the September results which were boosted by hurricane-related spending, this was by far the largest monthly increase since January.
Since stronger economic growth raises the outlook for future inflation, the retail sales data was negative for mortgage rates.
Looking ahead, political news on tax reform or government funding could influence mortgage rates. A vote on the tax bill is expected early next week, and a bill to extend government funding is needed by December 22. The major economic data will focus on housing and inflation. Housing Starts will be released on Tuesday and Existing Home Sales on Wednesday. The Core PCE price index, the inflation indicator favored by the Fed, will come out on Friday.
source: Mortgage Time Newsletter