News on the trade negotiations, comments from central bankers, and the economic data caused some volatility this week. The lasting impact of these events was relatively minor, however, and mortgage rates ended slightly lower.
There have been few new developments in the trade talks between the U.S. and China in recent weeks. Investors have been waiting for the G20 summit this weekend to see how much progress the two sides have made. According to President Trump, he and Chinese President Xi Jinping will be having “an extended meeting” beginning Saturday, and the results likely will have a significant impact on global financial markets.
The latest data released on Friday revealed that inflation remained well contained in May. The core PCE price index, the inflation indicator favored by the Fed, was just 1.6% higher than a year ago, which was the same annual rate of increase as last month. After ending 2018 near the Fed’s stated target level of 2.0%, this marked four straight months at much lower levels.
Following the meeting on June 19, a speech on Tuesday provided Fed Chair Powell with an opportunity to fine-tune the Fed’s message. Overall, his comments caused investors to scale back a bit their expectations for the pace of monetary policy loosening. While Powell indicated that future economic conditions might justify a reduction in the federal funds rate, his comments made it seem less likely that rate cuts will take place as quickly as some investors were anticipating. In addition, Powell stressed the “independence” of the Fed and that monetary policy decisions would be based on incoming economic data rather than “short-term political interests.”
Looking ahead, the monthly Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will be released on Monday and the ISM national services index on Wednesday. In addition, news about the trade negotiations this weekend likely will influence mortgage rates. Mortgage markets will close early at 2:00 et on Wednesday and will be closed on Thursday in observance of July Fourth.