Shutdown May End Soon

Overview: During another light week for economic data due to the government shutdown, mortgage markets were relatively quiet. One report revealed that consumers were far less optimistic than expected about the economic outlook. As a result, rates ended the week slightly lower.

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On Monday, the Senate passed a bill that would end the government shutdown, which has lasted over six weeks, the longest ever. The next step is for the House to pass the bill, a vote that is planned for Wednesday evening. If it is approved, President Trump has indicated that he will sign the bill into law, and government operations will resume. During the shutdown, all government economic reports except the Consumer Price Index (CPI) have been delayed. Since the collection of data was halted, it will take some time for government agencies to get caught up. It is expected that a schedule of economic release dates will come out soon after the government reopens.

The latest survey on consumer sentiment published by the University of Michigan showed a surprisingly large decline. This drop was primarily due to concerns about the government shutdown and higher tariffs. The index fell to just 50.3, far below the consensus forecast of 53.0 and the lowest level since June 2022 (which was the record low of 50). Even in April and May, when trade tensions caused large losses in the stock market and the economic outlook was uncertain, the index did not drop this low. One of the few brights spots in the report was that the five-year average outlook for inflation expectations unexpectedly fell, which was favorable news for mortgage markets.

A poll conducted by the private firm Reuters revealed that roughly 80% of economists expect that the Federal Reserve will reduce the federal funds rate by an additional 25 basis points at the next meeting on December 10. Despite Fed Chair Jerome Powell emphasizing at the last press conference that officials are divided on the need for another cut, economists believe that a weakening labor market will compel officials to further loosen monetary policy. However, many of those polled noted that stronger than expected economic data (if available) would reduce the likelihood of a cut in December.   

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Consumer Sentiment

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Week Ahead

Investors will continue to monitor comments from government and Fed officials about tariffs and changes in monetary policy. With the delays due to the government shutdown, it looks like it will be another light week for major economic data, with one notable exception: CPI is scheduled to be released on Thursday. CPI is a widely followed monthly inflation indicator that monitors price changes for a broad range of goods and services.