Wednesday's Fed meeting was viewed as mildly negative for mortgage rates. Threats from North Korea on Friday were slightly positive. As a result, mortgage rates ended the week with little change.
For investors, the most notable information from the Fed meeting was that a rapid pace of raising the federal funds rate received support from more Fed officials than expected. Roughly 75% of Fed officials forecasted one more rate hike this year and three rate hikes in 2018. This news caused mortgage rates to rise.
In the years following the financial crisis, the Fed sought to drive longer-term interest rates lower and stimulate the economy by purchasing enormous quantities of Treasury bonds and mortgage-backed securities (MBS). While there is broad agreement that those goals were achieved, the purchases left the Fed with massive holdings of these securities. On Wednesday, the Fed said that it is going to gradually shrink its balance sheet beginning in October. Investors had been expecting this announcement at this meeting, so there was little reaction.
On Friday, North Korea threatened to detonate a hydrogen bomb over the Pacific Ocean. Investors reacted to this by shifting to relatively safer assets, including MBS. The increased demand for MBS caused mortgage rates to decline a little.
Looking ahead, New Home Sales will be released on Tuesday and Pending Home Sales on Wednesday. Durable Orders, an important indicator of economic activity, also will come out on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, there will be Fed speakers every day next week including a speech by Fed Chair Janet Yellen on Tuesday.
George DeVine is a residential mortgage banker and the RI branch manager with Atlantic Home Loans. George has nearly thirty year's experience in the business and would welcome a call or email if you're looking for expert consultation for your next real estate purchase. firstname.lastname@example.org 401 301 0130.