Mortgage rates reacted to the Fed’s comments on economic growth in the U.S., concerns about overseas growth and expectations of future inflation. The reaction was favorable and mortgage rates have improved nicely over the past few days.
The statement and press conference following the September 17 Fed meeting provided investors with the Fed’s view that future inflation is expected to be low for several more years. They cited weakness overseas as providing downward pressure on inflation in the near-term, and the forecast from Fed members was that the U.S. inflation rate will not reach their 2.0% target until 2018. Since investors set mortgage rates based on expectations of future inflation, the Fed’s comments were favorable for rates.
The Fed Statement noted that the housing sector has shown “additional improvement.” The home builders seem to agree with that. The recently released NAHB confidence index rose to the highest level in eight years. While August Existing Home Sales did fall a little from the multi-year highs seen in July, they remain well above last year’s pace.
Looking ahead, Durable Orders, an important indicator of economic activity, and New Home Sales will be released on September 24. The third estimate of second quarter GDP will come out on September 25. The Core PCE price index, the Fed’s preferred inflation indicator, and Pending Home Sales will be released on September 28. The next Employment Report will come out on October 2.
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