Mortgage rates finished last week on a positive note, even that expectations have hardened in recent weeks, that the Federal Reserve will end its zero interest rate policy soon, possibly at the upcoming FOMC meeting next month. After moving down to 2-week lows, mortgage interest rates remained largely unchanged on Friday. Currently, the majority of lenders are offering the 30-year conventional mortgage rate in the range of 4.000% – 4.125%. Last week’s main market driver was the Minutes from the Fed’s October policy meeting, which got released on Wednesday. The Minutes revealed that U.S. policymakers were nearly ready to hike short-term rates last month and many of them believed that beginning a new monetarty policy phase could be appropriate soon.
National mortgage rates nudged lower last week, according to Freddie Mac’s latest weekly Primary Mortgage Market Survey (PMMS) released Thursday. The mortgage-buyer’s national survey showed, that the average interest rate on the benchmark 30-year fixed mortgage declined 1 basis point to 3.97% last week. Lenders were offering the shorter-term, 15-year fixed mortage at a lower rate as well last week, as the average rate on this type of loan dropped 2 basis points to 3.18%.
While a number of U.S. policymakers seemingly expect a rate hike in the near future, Federal Reserver Governor Daniel Tarullo remains worried about low inflation level, despite gains in employment. In an interview with Bloomberg TV this Monday, the top Fed official said that the domestic economic data released since the September Fed meeting had been mixed and there’s still a lot of uncertainty on inflation.
With a rate hike widely expected to take place before the year-end, it seems the attention is now shifting to the pace of rate hikes going forward, and inflation level remains a key component of that discussion. According to mortgage giant Fannie Mae, a liftoff in rates at the December FOMC meeting is a strong possibility, and if that happens then the monetary policy debate could shift to question how fast the Fed will tighten. Comments from Fed Chairwoman Janet Yellen and several Fed members from the past suggest that the pace of rate hikes could be gradual.
A research note released over the weekend by Goldman Sachs group economists Zach Pandl and Jan Hatzius, showed that they „expect the committee to raise the funds rate by 100bp next year, or one hike per quarter”. The pace of rate hikes could depend on the progress toward the Fed’s employment and inflation goals, as well as „evolving views on the level of equilibrium interest rates”.
The unfolding week is going to be a holiday-interrupted one, but nevertheless it will be packed with a slew of economic data. Assuming that the incoming economic data between now and the next FOMC meeting will be positive and the Fed continues to get signals that the economy is making progress toward the 2% inflation target level, then there’s a strong possibility that a rate increase will take place in December.
This Monday two pieces of economic reports are scheduled for release, in the form of Markit Economics’ U.S. Manufacturing PMI for November and existing home sales figures for October. Analysts believe that Markit’s manufacturing index likely slipped to 54.0 in November from 54.1 in October. On the other hand, sales of previously owned homes in the U.S. likely dropped 2.7% to 5.4 million units in October, according to the latest projections.
One of the key economic events of the week will take place on Tuesday, as the second estimate of Q3 GDP is going to be released. Economists expect and upward revision for Q3 GDP growth to 1.9% from 1.5% a month ago.
The second day of the week won’t be short of action on the economic front, as several other reports will be released, including a fresh reading on the S&P/Case-Shiller Home Price Index. Analysts expect that the data will show a slight uptick in house price growth for September.
Another report which will see the light of day on Tuesday is the Conference Board’s Consumer Confidence Index for November. The latest forecasts suggest that the index likely gained in November, following a decline a month earlier.
As far as regional manufacturing activity is concerned, the Richmond Fed Index for November will come out on Tuesday. The business activity index likely increased to 1 in November from -1 in October, according to fresh projections.
The housing market has been a bright spot for the economy since months. If the latest forecasts are to be believed, then sales of newly built homes likely surged 6.8% in October to a seasonally adjusted 500,000 units, following a disappointing reading in September. The report on new home sales will be published on Wednesday.
The upcoming Personal Income and Outlays report is scheduled for a release on Wednesday. Personal nominal income likely rose 0.4% in October, while consumer spending likely grew by 0.3%, according to the most up-to-date estimations. Core PCE inflation, which excludes volatile food and energy categories, likely climbed 0.2% last month.
The Labor Department will publish a fresh reading on jobless claims on Wednesday, which will provide us information about the current state of the labor market. According to the latest forecasts, initial claims for unemployment benefits likely remained unchanged at a seasonally adjusted 271,000 last week.
The consensus expectation is that durable goods orders likely increased 1.6% last month, following a drop in September. When transportation orders taken out of the equation, orders estimated to have increased 0.3%. The Commerce Department will release its report on durable goods orders on Wednesday.
Markit Economics will release another domestic economic data this week in the form of the U.S. Services PMI. The index is likely rose to 55.1 in November from 54.8 a month earlier.
The final reading of the University of Michigan’s Consumer Sentiment Index for November is another key economic data, which will see the light of day this week. If the new outlook shows some improvements compared to October’s figure (90.0), it could signal that Americans are more upbeat about the U.S. economy.
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