Overview: Overall, the past week was a quiet holiday period for mortgage markets. The one major economic event was Wednesday’s speech by Federal Reserve Chair Jerome Powell, which was somewhat positive for both stocks and bonds, and mortgage rates ended the week a bit lower.
In a speech on Wednesday, comments from Fed Chair Jerome Powell were viewed as supportive of a slower pace of Fed tightening. In particular, he said that the current federal funds rate is “just below” the neutral rate, which is the rate that neither speeds up nor slows down economic growth. This contrasted with his remarks in early October, in which he stated that the Fed was “a long way” from neutral. Following these and other recent comments from Fed officials, investors still expect a rate hike at the next meeting on December 19, but they have significantly reduced their outlook for further rate hikes in 2019. Both stocks and bonds reacted positively to the news of potentially looser monetary policy.
While the most recent housing sector data was not encouraging, a closer look revealed that it was not as disappointing as the headline figures made it seem. In October, sales of new homes fell 9% from September to an annual rate of just 544,000 units, which was well below the consensus forecast of 575,000 units. However, the data is volatile from month to month, and the results for September were revised higher by 44,000 units, which more than offset the shortfall seen in October.
Looking ahead, the minutes from the November 8 Fed meeting will be released on Thursday. The detailed minutes provide additional insight into the debate between Fed officials about future monetary policy and have the potential to move markets. The Pending Home Sales (PHS) Index and the core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by the Fed, will also come out on Thursday. The Institute for Supply Management (ISM) Manufacturing Index will be released on December 3, followed by the ISM Services Index on December 5. The next key Employment Report will come out on December 7. In addition, trade negotiations between President Trump and Chinese leaders over the coming weekend could influence mortgage rates.