Tighter Monetary Policy Concerns
Comments from central bankers were the main influence on mortgage rates over the past week. The economic data had little impact. Mortgage rates ended the week higher.
Loose monetary policy around the world, particularly bond buying programs, have significantly contributed to the current low level of mortgage rates. The added demand for bonds from central banks has pushed bond prices higher and yields lower around the world. Over the past week, both the ECB and the Fed appeared to be more hawkish than expected, meaning in favor of tighter monetary policy. As usual, the more hawkish tone was negative for mortgage rates.
Some investors had been hoping for an extension in the bond purchase program or new stimulus measures from the European Central Bank (ECB). At Thursday's meeting, though, the ECB dashed the hopes of these investors. Comments from the ECB signaled that they feel additional stimulus is not needed at this time.
While the ECB indicated a reluctance to further loosen monetary policy, the U.S Fed continues to debate the appropriate pace to tighten. On Friday, the Fed's Rosengren, who has long supported loose monetary policy, seemed to be open to a tightening by the Fed. While investor expectations for a rate hike at the next Fed meeting on September 21 remain low, futures markets indicate a roughly 50% chance for a rate hike before the end of 2016.
Looking ahead, the next Fed meeting will take place on September 21. The Fed statement and Fed Chair Yellen's press conference usually cause a significant reaction. Before that, the Bank of England will meet on Thursday and could influence U.S. mortgage rates. Thursday also will be packed with U.S. economic data including retail sales, industrial production, and PPI inflation. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The consumer price index (CPI), a widely followed monthly inflation indicator, will be released on Friday.
Commentary provided by MBSQuoteline. For live MBS pricing visit www.mbsquoteline.com.
This letter is for information purposes only and is not an advertisement to extend customer credit as defined by Section 12 CFR 1026.2 Regulation Z. Program rates, terms and conditions are subject to change at any time. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, 4131316 NMLS #237653