Offsetting Influences This Week On Rates

Dated: 08/08/2016

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Over the past week, there were offsetting influences on mortgage rates. A relatively bond-friendly Fed statement and weaker-than-expected U.S. economic data were positive for mortgage rates. Comments from the Bank of Japan (BOJ) had the opposite effect. Mortgage rates ended the week with little change.

Mortgage rates benefited from a very disappointing report on economic growth. Gross domestic product (GDP), the broadest measure of economic growth, grew at a rate of just 1.2% in the second quarter, far below the consensus of 2.6%. Two other major recent economic reports, the ISM manufacturing and services indexes, fell a little short of expectations. Since slower growth reduces the outlook for future inflation, these reports were good for mortgage rates.

Recently released inflation data also was good news for mortgage rates. The most recent reading for the core PCE price index, the Fed's favorite inflation indicator, showed that core inflation was just 1.6% higher than a year ago. Core PCE has held steady and remained close to this level all year. The Fed's target level for inflation is 2%.

On Tuesday, the minutes from the July 16 BOJ meeting were released, and they revealed that some BOJ officials are beginning to question the effectiveness of Japan's massive stimulus programs. Bond purchase programs by the BOJ and other major global central banks have helped keep U.S. bond yields and mortgage rates low. Since the BOJ appears to be less willing to add significant additional stimulus, the minutes had a negative effect on mortgage rates.
Source: MBS Quoteline

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David Sarnowski

David is a seasoned real estate professional, specializing in residential sales, rentals and investment properties. David is a 15 year resident of the New Jersey Gold Coast, with the local knowledge n....

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