FOMC Minutes from September revealed the Fed is not going anywhere with rates as they are worried about the economy. Fed Chair Yellen said, "Our decision does not reflect a lack of confidence in the economy." Yellen expanded by saying the Fed preferred to take a cautious approach to see if current growth would continue. Sounds like she is worried that it will not. Nonetheless, the minutes showed a cadre of Fed members pushing for a hike, so many economists feel there is an increased chance for one in December.
One worry that is going away is whether Millennials will ever have a real impact on the housing market. According to Freddie Mac's October Insight, this latest and largest generation of homebuyers will actually be key to improving the home ownership rate, which has declined for a decade. Freddie is confident Millennials will finally marry, start families and buy homes at the faster pace posted by previous generations. The Millennial Tracker from Ellie Mae loan origination software reported "In August, Millennial borrowers enjoyed the lowest average interest rates we have seen all year. And we are seeing average loan amounts creep up." Nice to be getting somewhere.
Review of Last Week
October has indeed gotten off to a rocky start for those toiling on Wall Street. Trading ended Friday with all three major stock indexes down for the second week in a row. This is a little scary for investors and it's not even Halloween. One fear rocking traders is that the Fed will do a rate hike before the end of the year. As reported above, the minutes released from the Fed's last meeting seem to indicate this. But Friday, Fed Chair Janet Yellen told a lunch crowd of academics and policy wonks that "temporarily running a 'high-pressure economy,' with...a tight labor market" before raising rates might cure the sluggish economy. OK, no hike?
Meanwhile, some of the week's economic data seemed to point to an economy that could survive a mild hit from the Fed. Retail Sales finally headed up in September, and by a respectable 0.6%. Unfortunately, they're up only 2.7% compared to a year ago. The Producer Price Index (PPI) showed wholesale price inflation was up 0.3% in September. Consumer price inflation could follow, something the Fed wants to see. Initial Unemployment Claims, at 246,000 for the week, tied their lowest level in more than 40 years. Yet the University of Michigan Consumer Sentiment index dropped from September's 91.2, to 87.9 in October, a one-year low. Rock on.
The week ended with the Dow down 0.6%, to 18138; the S&P 500 down 1.0%, to 2133; and the Nasdaq down 1.5%, to 5214.
It was one of those unusual weeks when stocks and bonds sank together. Treasuries were hit hard, so yields went up and interest rates followed. The 30YR FNMA 4.0% bond we watch finished the week down .14, at $107.02. And yes, national average 30-year fixed mortgage rates edged a bit higher, their first move up in a month, in Freddie Mac's Primary Mortgage Market Survey for the week ending October 13. Remember, mortgage rates can be extremely volatile, so please contact me direct at 303.668.3350 for up to date information.
This Week’s Forecast
Expect to see home building activity growing in September, with both Housing Starts and Building Permits edging ahead. But they still have some distance to go to reach the 1.5 million annual rate some economists say we need to meet population growth and replace tear downs. Existing Home Sales are forecast down a bit in September. At least the CPI should show benign inflation, good for consumers and mortgage rates.
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 Oct 17 – Oct 21
Oct 17 08:30 NY Empire Manufacturing Index
Oct 17 09:15 Industrial Production
Oct 18 09:15 Capacity Utilization
Oct 18 08:30 Consumer Price Index (CPI)
Oct 18 08:30 Core CPI
Oct 19 08:30 Housing Starts
Oct 19 08:30 Building Permit
Oct 19 10:30 Crude Inventories
Oct 19 14:00 Fed's Beige Book
Oct 20 08:30 Initial Unemployment Claims
Oct 20 08:30 Continuing Unemployment Claims
Oct 20 08:30 Philadelphia Fed Index
Oct 20 10:00 Existing Home Sales
Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. It's practically a foregone conclusion among Fed watchers that the rate will head north in December, then stay there at the next meet in February. Note: In the lower chart, an 8% probability of change is a 92% certainty the rate will stay the same.
Current Fed Funds Rate: 0.25%-0.5%
After FOMC meeting on:
Nov 2 0.25%-0.5%
Dec 14 0.5%-0.75%
Feb 1 0.5%-0.75%
Probability of change from current policy:
After FOMC meeting on:
Nov 2 8%
Dec 14 69%
Feb 1 72%
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