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Trade, Inflation, and the Fed

Overview: Much like last week, daily volatility remained relatively high, but mortgage rates ended with little change. Headlines about the trade negotiations with China had more influence than the economic data, but neither significantly altered the long-term outlook for the economy.


On Thursday, a Chinese trade official said that both sides have agreed to simultaneously remove some existing tariffs. This caused investors to grow more optimistic that a limited trade agreement covering some basic items will be signed. More difficult issues, such as the protection of intellectual property, will be addressed in future discussions. However, later reports indicated that some U.S. officials are opposed to any tariff reductions until an agreement has been reached in a wider range of areas. The result is that investors remain just as uncertain about the current level of progress in the trade talks, and the net effect on mortgage rates was small.

In October, the core Consumer Price Index (CPI) increased at a 2.3% annual rate, which matched expectations and had little impact on mortgage rates. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Investors generally prefer the core reading, which excludes the volatile food and energy components, to determine the underlying trend.

In testimony to Congress on Wednesday, Federal Reserve Chair Jerome Powell said that Fed officials expect moderate economic growth and inflation near their target levels. He went on to say that if this is the case, the Fed is unlikely to adjust the federal funds rate for a while. These comments were in line with other recent statements from Fed officials.

Week Ahead

November 15 — Retail Sales report

November 19 — New Residential Construction report (Housing Starts)

November 20 — Minutes from the October 30 Fed meeting

November 21 — Existing Home Sales report

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