Fed Cuts Interest Rates, Housing Starts Rise

September 18, 2019

 

Overview: Over the past week, investors were focused on two major central bank meetings, but neither revealed any significant surprises nor caused much reaction. Stronger than expected U.S. spending and housing data also had little effect, and mortgage rates ended the week nearly unchanged.

On Wednesday, the Federal Reserve cut the federal funds rate by 25 basis points, as expected, and the statement released after the meeting contained few changes from the prior one. Officials cited weakening global growth, trade tensions, and low inflation as the primary reasons for the rate cut and said that future policy will be determined based on incoming economic data.

 

The U.S. Fed decision followed multiple easing actions by the European Central Bank (ECB) at their meeting on September 12. To help stimulate economic growth, the ECB cut rates and announced that it will resume a bond-buying program, which had ended in December. According to its statement, the ECB will purchase 20 billion euros of eurozone debt per month for "as long as necessary.""

 

The latest data from the housing sector increased optimism that additional supply may be on the way. In August, housing starts jumped a much larger than expected 12% from July, to the highest level since 2007. Permits to build new homes also exceeded expectations and reached the best level since 2007. Both the single-family and multi-family segments posted solid gains in August. Since a lack of inventory has been holding back sales, this report was welcome news for the industry.

 

Another potentially positive sign for future home sales is that U.S. consumers gave little indication of slowing their spending in August. Retail sales, which account for roughly 70% of U.S. economic activity, rose 0.4% from July, double the consensus for an increase of just 0.2%. This was the sixth straight month of healthy gains.


Week Ahead 

September 20 — Existing Home Sales

September 24 — New Home Sales

September 27 — Core Personal Consumption Expenditures (PCE) Price Index

September 27 — Durable Goods report

 

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