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Fed Holds Steady

Overview: Over the past week, the main influence on mortgage rates was stronger-than-expected consumer spending data. The Federal Reserve meeting caused little reaction, and rates ended the week a bit higher.


The Fed made no policy changes on Wednesday, and there were no surprises in its meeting statement. Investors were looking for more precise guidance on the timing for tightening monetary policy. The first method for tightening will be to taper the massive bond purchase program, and the Fed still did not pin down a specific date. According to the statement, “a moderation in the pace of asset purchases may soon be warranted.” Investors interpreted this to mean that it will begin in either November or December. At some point after the bond purchase program has concluded, the Fed will begin to raise the federal funds rate from the historically low levels required to help offset the effects of the pandemic. The projections released after the meeting revealed that half of the 18 officials anticipate that the first rate hike will take place in 2022, and the other nine think it will be in 2023. This was slightly sooner on average than the prior set of projections.

Consumer spending accounts for over two-thirds of U.S. economic activity, so the retail sales data is a key indicator of the health of the economy. The latest data was quite encouraging and helped ease investor concerns that the spread of COVID would limit shopping during the important back-to-school season. In August, retail sales jumped 0.7% from July, which was far above the consensus for a decline of -0.8%, and were a massive 15% higher than a year ago. Strength was seen in a wide range of categories including department store and furniture sales. The few pockets of weakness such as auto sales were mostly due to a lack of inventory resulting from supply chain disruptions.

As expected, sales of existing homes in August rose modestly from July and were at roughly the same level as a year ago. Inventory levels were down 13% from a year ago, at just a 2.6-month supply nationally. The median existing-home price of $356,700 was 15% higher than last year at this time.

Week Ahead

Looking ahead, investors will monitor comments from Fed officials for hints about the timing of future monetary policy changes and will track COVID case counts globally. Beyond that, the New-Home Sales report will be released on Friday. The Durable Goods report, an important indicator of economic activity, will come out on September 27.


Retail Sales (% change)



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