Continuing concern about the pace of global economic growth was good for mortgage rates and negative for stocks this week. The major U.S. economic data and the Fed meeting were smaller influences, and mortgage rates ended the week lower.
As expected, the Fed raised the federal funds rate by 25 basis points on Wednesday. The big question going into the meeting concerned the guidance about future monetary policy. Fed officials now expect two additional rate hikes in 2019, one less than it had previously forecast in September. Still, many investors had anticipated that the Fed would scale back the pace even more given the increased perception of slowing global economic growth and the large declines in major stock markets around the world. The meeting resulted in some short-term volatility, but it had little lasting effect on mortgage rates.
The most recent inflation data revealed that core inflation is rising but remains below the Fed's stated target level of 2.0%. In November, the core PCE price index, which excludes the volatile food and energy components, was 1.9% higher than a year ago, up from an annual rate of increase of 1.8% last month. Core PCE is the inflation indicator favored by the Fed.
Housing starts rose a solid 3% from October. However, the strength came from the volatile multi-family segment. Single-family starts dropped 5% from October to the lowest level since August 2017 and were 13% lower than a year ago. In addition, the December NAHB housing index showed that home builder confidence declined from 60 to 56, far below the consensus and the lowest level since May 2015.
Looking ahead, trading volume generally is very light during the holiday period at the end of December, which can lead to higher volatility. New Home Sales will be released on December 27 and Pending Home Sales on December 28. Mortgage markets will close early on December 24 and will be closed on December 25.