In a week packed with big economic news, investors feared that the trend toward higher mortgage rates seen this month would continue. The risk that the Fed might signal a scaling back of its MBS purchases concerned investors. In the end, though, a neutral Fed statement and an unexpected increase in the Unemployment Rate allowed mortgage rates to reverse early increases and end the week with little change.
Wednesday's Fed statement was very similar to the statement issued after its December meeting. Concerning its MBS purchase program, the intention stayed the same, meaning that the Fed will continue buying MBS until the Unemployment Rate drops to 6.5%, as long as inflation doesn't increase too much before then. The Fed is the largest buyer of MBS and its demand helps keep rates low. The Fed statement reduced concerns that the MBS purchase program might be cut sooner than previously expected.
Against a consensus forecast of 180K, the economy added 157K jobs in January. The figures from the prior two months were revised significantly higher, raising the 3-month average above expectations. The Unemployment Rate climbed to 7.9%, though, above the consensus for a decline to 7.7%. The increase took place because the labor force grew more quickly than the number of jobs. Bottom line, job growth was a little stronger than expected overall. But with the Fed specifically targeting the Unemployment Rate to determine the duration of its bond-buying program, the increase to 7.9% was favorable for mortgage rates.