Chair Janet Yellen doesn't touch rates and doesn't elaborate.
This left the pundits speculating over a Fed policy statement that said to expect rates to remain historically low "for some time." Still, most economists think a December rate hike is a certainty however the Fed's latest statement did downgrade its view of household spending from "growing strongly" to "rising modestly" and one member who voted for a rate hike in September now voted against it.
Of course, the Fed Funds Rate is not a mortgage rate, although a hike from the Fed can eventually affect mortgages. Nonetheless, the chief economist at a major aggregator of real estate data commented, "I think we'll see rates rise from dirt cheap to a very low level as we move into next year." Younger buyers are finally showing up in the housing market. The National Association of Realtors (NAR) chief economist said that in the past year, "those under age 35 made up 61% of first time buyer transactions." He added that their increased presence "greatly depends on supply improvements and if wages can finally awaken from their sluggish pace of growth."
Review of Last Week
Stocks ended the week before the election with all three indexes decidedly down, the S&P 500 and the Nasdaq posting losses for the second week in a row. This is normal stock market reaction to a close Presidential race and this year's has recently tightened. Do understand this has nothing to do with any political leanings on Wall Street. Investors simply hate uncertainty, and more observers are now saying the White House prize is up for grabs. Economic data remains uncertain too, with the ISM Index of manufacturing activity up a bit, but ISM Services down for that part of the economy supplying more than 80% of U.S. jobs.
Speaking of jobs, Friday's employment report got the usual mixed reviews. October saw 161,000 new non farm payrolls, and there were upward revisions to prior months, yet these numbers barely cover population growth. The household survey, which includes small businesses (the big engine for new jobs), showed a reduction of 43,000 for the month. And the unemployment rate dipped to 4.9%, but that was with 195,000 leaving the labor force. The report's brightest spot was the 0.4% rise in average hourly earnings, and many feel the Fed will take that as a sign they can raise rates next month in spite of an economy that grew at just a 1.4% annual rate in Q2.
The week ended with the Dow down 1.5%, to 17888; the S&P 500 down 1.9%, to 2085; and the Nasdaq down 2.8%, to 5046.
Bond traders focused on the negative rather than the positive in Friday's jobs report, sending Treasuries and other issues higher. The 30YR FNMA 4.0% bond we watch finished the week UP .08, at $107.14. National average 30-year fixed mortgage rates went up in Freddie Mac's Primary Mortgage Market Survey for the week ending November 3, but remain below where they were a year ago. Remember, mortgage rates can be extremely volatile, so check with your mortgage professional for up-to-the-minute information.
This Week’s Forecast
Forgive the sad joke, but the October Federal Deficit is one of this week's few economic reports, and no one expects to hear that Washington is suddenly operating in the black. Tuesday is Election Day and the markets will no doubt react to the results, especially given the paucity of economic data.
Friday, November 11th, the stock market is open, but the bond market is closed in observance of Veterans Day.
The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Nov 7 – Nov 11
Nov 09 10:30 Crude Inventories
Nov 10 08:30 Initial Unemployment Claims
Nov 10 08:30 Continuing Unemployment Claims
Nov 10 14:00 Federal Deficit
Nov 11 10:00 U. of Michigan Consumer Sentiment
Federal Reserve Watch
Speculative Forecasting Federal Reserve policy changes in coming months
An overwhelming majority of economists see the Fed hiking by a quarter of a percent in December, but holding the rate there, clear through the March meeting.
Note: In the lower chart, a 67% probability of change means there's only a 33% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Dec 14 0.5%-0.75%
Feb 1 0.5%-0.75%
Mar 15 0.5%-0.75%
Probability of change from current policy:
After FOMC meeting on:
Dec 14 67%
Feb 1 69%
Mar 15 70%
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