This week was packed with major economic news highlighted by Wednesday’s Fed meeting and Friday’s Employment report. The result was a lot of volatility, but the various influences were offsetting, and mortgage rates ended the week nearly unchanged.
As expected, the Fed made no change to the federal funds rate. The statement released after the meeting noted “solid” gains in recent economic activity and job gains, but it also explicitly acknowledged that inflation has been running below the Fed’s target annual rate of 2.0%. As a result, the initial reaction was a drop in mortgage rates on increased expectations for a rate cut this year due to this lack of inflationary pressures. The declines were later reversed, however, when Fed Chair Powell suggested during his press conference that low inflation appears to be mostly due to “transitory” rather than “persistent” factors and said that officials “don’t see a strong case for moving” the federal funds rate “in either direction.”
Normally, stronger economic activity results in higher inflation due to increased demand for goods and services. However, the latest Employment report provided yet another clear example of the healthy economic growth with surprisingly tame inflation cited by the Fed. Against a consensus forecast of 190,000, the economy added 263,000 jobs in April. The unemployment rate unexpectedly declined from 3.8% to 3.6%, which was the lowest level since 1969.
Wage inflation fell a little short of expectations, though. Average hourly earnings were 3.2% higher than a year ago, which was the same annual rate of increase as last month. The net effect of the mixed labor market data on mortgage rates was small.
Looking ahead, the JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. Fed officials value this data to help round out their view of the strength of the labor market. The Consumer Price Index (CPI) will come out on Wednesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates. Investors also will be watching for news about the trade negotiations between the U.S. and China.