Favorable Fed Meeting
Investors liked what the Fed said, or didn't say, following Wednesday's meeting. Both stocks and bonds reacted favorably. The economic data had little impact. As a result, mortgage rates ended the week lower.
As expected by most investors, the Fed did not raise the federal funds rate. The Fed explained in its post-meeting statement that the case for a rate hike "has strengthened," but Fed officials decided to wait for "further evidence of continued progress toward its objectives." Notably, Fed officials remain divided about the appropriate timing to tighten monetary policy. In a rare occurrence, three out of ten voting Fed members dissented from the decision because they wanted a rate hike to take place at this meeting. Conversely, three Fed officials indicated in their forecasts that they do not see a need to raise rates at all this year. Investors were pleased that the Fed did not come out more strongly in favor of tighter monetary policy, and mortgage rates improved following the meeting.
There are signs that building activity for single-family homes may pick up in coming months, however. In August, building permits for single-family homes increased 3.7% from July, which was the largest monthly increase since June 2014. In addition, the NAHB home builder confidence index jumped to 65 in September, which matched the highest reading since 2005.
Looking ahead, New Home Sales will be released on Monday. Durable Orders, an important indicator of economic activity, will come out on Wednesday. Pending Home Sales and the third estimate of second quarter GDP will be released on Thursday. The Core PCE price index, the Fed's preferred inflation indicator, will come out on Friday.