Averate 30 yr fixed rate: Last week: +0.02%; This week: -0.02%
No Change from the Fed
In a week full of major economic news, mortgage rates ended with little change. Wednesday’s Fed meeting produced little reaction in mortgage markets. The PPI inflation report was higher than expected, but the more closely watched CPI report was right on target, remaining at low levels. Economic troubles in some developing nations produced a flight to safer assets, which helped mortgage markets late in the week.
As expected, the Fed held the fed funds rate steady and made no indication that it will raise this rate any time soon. Its statement contained no surprises. Of note, it described improvement in the job market since the last FOMC meeting, as the “deterioration in the labor market is abating.” The Fed expects inflation to remain low. Finally, the statement reminded investors that the $1.25 trillion mortgage-backed securities purchase program will conclude at the end of the first quarter of 2010. Mortgage investors were generally pleased that there was no unfavorable news from the Fed meeting.
The housing sector data released during the week was mostly favorable. November Housing Starts rose 9%, and Building Permits, a leading indicator, showed similar results. The December NAHB Homebuilders Sentiment index surprisingly dropped slightly, to the lowest level since June. Given the passage of the extension and expansion of the homebuyer tax credit, the index was expected to rise.
- Core CPI inflation rose a tame 1.7% from one year ago
- The Index of Leading Indicators increased for the eighth straight month
- Fed Chief Bernanke was nominated for a second term by a Senate panel
- The Fed purchased $16 billion in agency MBS during the week ending 12/16/09
The Week Ahead
Before the holiday next week, a significant amount of economic data will be released. Existing Home Sales and the final reading for third quarter GDP will come out on Tuesday. Wednesday will be the biggest day with New Home Sales, Core PCE inflation, Personal Income, and Consumer Sentiment. Durable Orders will be released on Thursday. In addition, the Treasury will announce the size of upcoming auctions on Wednesday. Mortgage markets will be closed on Friday in observance of Christmas.