Mortgage Rates Level Off - Waits for Next Week FOMC Meeting

Mortgage rates were steady, confirming the end of a somewhat abrupt correction from last week's 2017 lows.  In other words, rates rose quickly during the first days of the week and spent the last 3 days leveling off. 

This week we saw stocks up and interest rates up. No reaction to the North Korea launch yesterday, no reaction to the very soft retails in August. No reaction to the terrorist bomb in London. The best most economists are saying is that markets are no longer fearing the US will do anything militarily no matter the NK antagonism - basically relying on diplomatic measures. A majority of Americans support military action against North Korea if economic and diplomatic efforts fail, according to a Gallup poll released today amid rising tension over Pyongyang’s nuclear weapons program and recent missile launches. The survey of 1,022 U.S. adults last week found that 58% said they would favor military action.

Some comments today that inflation was a big deal this week - PPI was stronger, CPI yesterday also fractionally higher. Something to think about but I do not see those two increases as any reason to reverse thinking that inflation is still moribund. At the end of the month August personal income and spending data along with the Fed’s favorite inflation reading, the PCE. The hurricanes have taken a toll on inflation - higher costs for building materials and home furnishings, increases costs of gasoline and crude oil. Symptoms but so far not a trend. Much of the coming economic data will be influenced by the hurricanes.

Next week the key event is the FOMC meeting on Tuesday and Wednesday and Janet Yellen’s press conference Wednesday afternoon. On Monday, the Sept NAHB housing market index. Tuesday August housing starts and permits, August import and export prices. Wednesday August existing home sales, beside the FOMC the Fed will release its forecasts on growth and inflation. Thursday Sept Philly Fed business index, August leading economic indicators, weekly jobless claims.  

The flat momentum at the end of this week is not too likely to stick around next week.  The Fed will (probably) make a landmark announcement that confirms the start of its balance sheet reduction efforts.  This means slightly less bond-buying each month, and could put upward pressure on rates.  Financial markets are widely expecting that, however, and the Fed has already fully mapped out its game-plan for the program.  So, the bigger impact to rates would come from any updates to the Fed's forecasts or the verbiage in the policy statement.

In summary, with the most recent major development for mortgage rates being a bounce at the lowest levels of the year, it makes more sense to stay on guard against upward pressure until and unless we see renewed momentum toward lower rates.