Two big events were responsible for most of the movement in mortgage rates over the past week. The Fed minutes were viewed as favorable, but the Employment Report was not. The net effect was that mortgage rates ended the week a little lower.
The minutes from the December 14 Fed meeting released last Wednesday afternoon triggered a rally in mortgage rates, which continued on Thursday. The minutes did not contain any unexpected news, and it appears that bond investors were quite content with the lack of surprises. In the minutes, Fed officials noted that it will take some time to determine the impact on the economic outlook of the expected policy changes under the incoming Trump administration. Looking at futures markets, investors took this to mean that the Fed is unlikely to raise the federal funds rate again until at least June.
Unfortunately, mortgage rates reversed direction after the release of Friday’s key monthly Employment data. The report revealed an unexpectedly large increase in wage growth in December. Average hourly earnings were 2.9% higher than a year ago, up from 2.5% last month, and the highest level since 2009. Little stood out in the rest of the report. Job gains and the unemployment rate in December closely lined up with the consensus forecast. While the pickup in wage growth was great news for the economy, inflation is negative for mortgage rates, since it reduces the value of future cash flows.
Looking ahead, the Retail Sales Report will be released on Friday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI), a widely followed monthly inflation report, will come out on January 18. CPI looks at the price change for goods and services that are sold to consumers. Industrial Production, another important indicator of economic activity, also will be released on January 18. The next European Central Bank (ECB) meeting will take place on January 19 and could influence U.S. markets.
Thank you Doug Hefner of Home Savings Mortage for the above article!