Budget Plan Passes
The passage of a budget plan was negative for mortgage rates this week. The economic data had little impact. As a result, mortgage rates ended the week higher.
Late Thursday, the Senate voted in favor of a 2018 budget plan. This was a key early step along the path to tax reform. Investors viewed the progress on tax reform as negative for mortgage rates for a couple of reasons. First, a new tax plan likely would boost economic growth, which would raise the outlook for future inflation. In addition, it would increase the budget deficit. The added supply of bonds needed to fund the deficit would push yields higher.
The headline figures released on Wednesday for housing starts in September were disappointing. However, digging deeper it was clear that the data was heavily influenced by the impact of the recent hurricanes, and the market reaction was small.
Looking ahead, the big event next week likely will be Thursday's meeting of the European Central Bank (ECB). Investors expect that the ECB will announce its future plans for its bond purchase program. In the U.S., Durable Orders and New Home Sales will be released on Wednesday. Pending Home Sales will come out on Thursday. The first estimate for third quarter GDP, the broadest measure of economic growth, will be released on Friday.