Overview: There was a wide range of economic news over the past week, and some economic reports were delayed by the government shutdown, but there were few surprises. As a result, mortgage rates ended nearly unchanged.
The most highly anticipated economic report scheduled to be released over the past week, the data on retail sales, became the most significant one so far to be delayed by the government shutdown, which began on December 22. It is not known when the retail sales data will be released.
Core inflation held relatively steady for most of 2018. In December, the core Consumer Price Index (CPI), which excludes the volatile food and energy components, rose modestly from November and matched the consensus forecast. Core CPI was 2.2% higher than a year ago, the same annual rate of increase as last month. This is close to the Fed's stated target level of 2.0%.
The news from the housing sector was encouraging. In January, the National Association of Home Builders (NAHB) Housing Market Index showed that builder confidence unexpectedly increased from 56 to 58. Readings above 50 are viewed as positive. The Chairman of the NAHB attributed the increase to declining mortgage rates in recent weeks and said that “low unemployment, solid job growth, and favorable demographics” should support the housing market in coming months.
The Federal Reserve currently has in place a monthly schedule to reduce its roughly $4 trillion in holdings of Treasuries and mortgage-backed securities. On Thursday, Fed Chair Powell said that the final size of the balance sheet will be "substantially smaller than it is now," but he declined to provide a precise figure. Since selling by the Fed increases the supply of bonds in the market, investors are interested in finding out the exact quantity that the Fed plans to sell.
While it caused little reaction in U.S. financial markets, investors were closely watching a Brexit (British exit from the European Union) vote on Tuesday. As expected, the British Parliament rejected the deal on the terms of the departure proposed by Prime Minister Theresa May. The U.K. is scheduled to leave the European Union on March 29, and a great deal of uncertainty remains about what will happen at that time.
Looking ahead, the New Residential Construction report (also known as Housing Starts) is scheduled to come out on Thursday. The Industrial Production and Capacity Utilization report, an important indicator of economic activity, will be released on Friday. The Existing Home Sales report will come out on January 22. In addition, the next European Central Bank (ECB) meeting will take place on January 24 and could influence U.S. mortgage rates. The government shutdown could affect some of these release dates.