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Another Rate Cut

Overview: While several significant economic events took place over the past week, there were no major surprises. The central bank meetings, the latest news about the British exit from the European Union (Brexit), and the economic data had just a minor impact, and mortgage rates ended the week with little change.

At Wednesday’s meeting, the Federal Reserve made the widely anticipated 25 basis point reduction in the federal funds rate. The statement released after the meeting contained a small wording change, which was consistent with the view of most investors that Fed officials currently do not expect additional rate cuts. In other words, rates will be held steady going forward unless changing economic conditions cause a need for an increase or decrease.

As expected, the European Central Bank (ECB) kept benchmark rates unchanged at its meeting on Thursday, and comments from ECB President Draghi were in line with investor expectations. With still no deal in place, the scheduled departure date of October 31 for Brexit was postponed until January 31 to allow more time for negotiations.

Third-quarter U.S. gross domestic product (GDP), the broadest measure of economic growth, rose 1.9%, which was above the consensus forecast and close to the 2.0% rate seen during the second quarter. Due to slowing economies in other countries and the uncertainty resulting from the trade war with China, business investment was weak during the third quarter. However, consumer spending remained strong, and the housing sector provided an unexpectedly large boost.

Week Ahead

October 31 — Core Personal Consumption Expenditures (PCE) Price Index

November 1 — Employment Report

November 1 — Institute for Supply Management (ISM) Manufacturing Index

November 5 — ISM Services Index

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