Market Perspective

Fed Holds Steady, Retail Sales Take a Hit


Overview: Over the past week, increased optimism about the overall economic outlook was negative for mortgage markets. This week’s economic data was affected by severe weather in February, so its impact was muted, and Wednesday’s Federal Reserve meeting contained no major surprises. Mortgage rates ended the week a little higher.

As anticipated, the Fed made no change in the federal funds rate on Wednesday, and its meeting statement was roughly in line with investor expectations as well. Of note, the Fed made no mention of adjusting its pace of bond purchases and will continue to buy at least $120 billion per month until “substantial further progress” is made toward its employment and inflation goals. Most of the 18 officials do not expect to raise the federal funds rate until at least 2023.


While some investors are concerned that the Fed may be close to reducing its pace of bond purchases, the European Central Bank (ECB) announced on Thursday that it plans to increase its bond purchases “significantly” going forward to help stabilize yields and boost the economy. The ECB may be more inclined to take this approach than the Fed because the eurozone is forecasted to grow only around 4% this year, compared to a much stronger 6.5% estimate for the U.S.


Since consumer spending accounts for over two-thirds of all economic activity in the U.S., the retail sales data is a key indicator of growth. Following sharp declines in the spring of 2020 due to the pandemic, consumer spending quickly bounced back to reach record levels. Retail sales then held relatively steady each month during the second half of 2020. But with the distribution of stimulus checks and the vaccine rollout, volatility has returned during the first couple of months of this year. After soaring an upwardly revised 7.6% in January, retail sales unexpectedly declined 3% in February, partly due to severe weather in many regions.


Another area affected by poor weather conditions in February was home construction. Housing starts in February dropped 10% from January, which was a larger than expected decline. However, it’s very difficult to forecast the impact of disruptions due to severe weather, and one-time events of this nature convey little information about the longer-term trend.

Retail Sales (% change)

Week Ahead

March 22 — Existing Home Sales report

March 23 — New Home Sales report

March 26 — Core Personal Consumption Expenditures (PCE) Price Index

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