Mortgage bond prices finished the week higher which helped rates fall. There was some seesaw trading but within a relatively narrow ahead of the Fed meeting Wednesday. The Fed reduced growth projections for this year and mortgage bond prices rose which pushed rates lower Wednesday afternoon and into Thursday morning. The data was mixed. Housing Starts were 1142K versus the expected 1186K. Weekly jobless claims printed at 252K and continuing claims, a summation of all receiving benefits, at 2,113K. Expectations were for claims at 262K and continuing claims at 2,143K. Existing home sales printed at 5.33M units versus the expected 5.5M units. Housing prices rose 0.5% in July according to the FHFA Housing Price Index. Mortgage interest rates finished the week better by approximately 3/8 of a discount point.
No Fed Rate Change
The Federal Open Market Committee left rates unchanged this week as expected. They also reduced the expected growth rate for the economy (GDP) from 2% to 1.8%. The bond market generally favors poor economic data. Lower growth signals economic concern and helps mortgage interest rates stay low.
The Fed has a dual mandate from Congress, full employment and price stability. With the unemployment rate running below 5% it can be argued that the employment mandate has been met. What is lacking is inflation. The Fed would like to see a 2% inflation rate, which has been elusive. The slower the economy grows the more difficult it will be for inflation to rise. However, rate hikes are not off the table. Yellen stated, "Our decision does not reflect a lack of confidence in the economy." In addition, "The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives." Now is a great time to take advantage of the currently low mortgage interest rates.