Central Banks Dominate

Fed no rate change, housing encouraging

Central banks dominated the movement in mortgage rates in a positive way this week. Stronger than expected economic data and trade news had much less impact, and mortgage rates ended at the lowest levels in more than two years.

Monday, the European Central Bank (ECB) unexpectedly indicated that it might provide additional stimulus measures as soon as next month, which caused a decline in global bond yields, including U.S. mortgage rates. It was unusual to see news of this significance released outside of scheduled meeting dates, and it set the stage for Wednesday’s U.S. Fed meeting.

As expected, the Fed made no change in rates, and the Fed statement was right in line with investor expectations. Like the European Central Bank on Monday, the Fed shifted toward a more dovish stance and signaled that looser policy may be seen in the near future if appropriate based on changing economic conditions. Of note, the Fed removed the word “patient” to describe its approach to making changes in monetary policy. The statement also noted that the “uncertainties” about the outlook for a “sustained expansion of economic activity” have increased. Nearly half of Fed officials predict that a rate cut will be needed before the end of the year.

The data from the housing sector released this week was somewhat encouraging, as lower mortgage rates helped boost sales activity. In May, sales of previously owned (existing) homes rose 3% from April, which was above the expected levels. The inventory of homes for sale was at a 4.3-month supply, still well below the 6.0-month supply which is considered a healthy balance between buyers and sellers, but it was 3% higher than a year ago. Housing starts in May also exceeded expectations.

The latest news on the trade negotiations contained just an update on the planned schedule. President Trump said that he and Chinese President Xi Jinping will be having “an extended meeting” next week at the G-20 summit beginning June 28.

Next Week

Looking ahead, New Home Sales will be released on Tuesday. Durable Orders, an important indicator of economic activity, will come out on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, news about the trade negotiations may influence mortgage rates.

Date Upcoming Report
Tue 6-25 New Home Sales
Wed 6-26 Durable Orders
Fri 6-28 Core PCE

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