Overview: With global central banks aggressively tightening monetary policy, investors reduced their outlook for economic growth and inflation, which was positive for mortgage markets. The economic data released over the past week caused little reaction, and mortgage rates ended lower.
As expected, the Federal Reserve raised the federal funds rate by 75 basis points on Wednesday, matching the largest increase since 1994, and indicated that more rate hikes will take place in coming months. Of note, however, Fed Chair Jerome Powell said that the size of future rate increases will now be decided on a meeting by meeting basis determined by incoming economic data, meaning that there may be less forward guidance. He added that officials will assess how monetary tightening has affected the economy and inflation. The statement released after the meeting pointed out that “recent indicators of spending and production have softened.” Investors are now divided about whether the Fed will raise rates by 50 or 75 basis points at the next meeting in September.
On Thursday, the European Central Bank (ECB) raised its benchmark rate by 50 basis points, its first increase in 11 years. Most investors had expected a smaller hike of only 25 basis points. With inflation in the eurozone at record high levels, this action demonstrated that the ECB also will be aggressive in tightening monetary policy to help stabilize prices.
Higher mortgage rates have hurt housing market activity in recent months. Sales of new homes in June fell far more than expected from May to the lowest level since April 2020 and were 17% lower than a year ago. The median new-home price was 7% higher than last year at this time at $402,400.
New Home Sales (thousands)
Week Ahead
July 28 — Second-quarter gross domestic product (GDP)
July 29 — Core Personal Consumption Expenditures (PCE) Price Index
August 1 — Institute for Supply Management (ISM) Manufacturing Index
August 3 — ISM Services Index
August 5 — Employment Report