Mar 19, 2015 | Market Outlook
The post-meeting statement of the Federal Reserve’s Federal Open Market Committee indicated that while the Fed is considering raising its target rate as early as June, the agency is in no hurry to cast anything in cement. The statement cited stronger labor markets and low unemployment rates as encouraging, but noted that FOMC members remain concerned about economic growth due to low inflation failing to meet the FOMC goal of two percent.
15 of 17 FOMC members said that they expected interest rates to increase before year-end, but downwardly revised forecasts of how high rates might be raised. Committee members further expressed concerns about economic growth and inflation, which is likely to impact Fed decisions about raising interest rates or not.
Economic Growth, Inflation Slower than Expected
The FOMC statement noted that economic growth has “moderated somewhat”, which was less enthusiastic than in January, when the Fed noted solid economic growth. The Fed revised its projections for the national unemployment rate from December’s expected range of 5.20 to 5.50 percent to 5.00 percent to 5.20 percent.
The target federal funds rate remains at a range of 0.00 to 0.250 percent and is expected to increase to 0.625 percent by year-end, and forecasted to reach 0.875 percent by the end of 2016. The target rate is expected to rise to 1.25 percent at the end of 2017.
Raising the target federal funds rate would impact mortgage rates, rates on vehicle loans and corporate loans. As the cost of loans rises, and wages stay relatively flat, consumers will have less cash for discretionary spending and may put off buying homes and purchasing big-ticket items that require financing.
Fed Chair Says Fed Isn’t “Impatient” about Raising Rates
After the FOMC statement was issued, Fed Chair Janet Yellen gave a press conference. Asked about the FOMC removing the word “patient” from its description of the committee’s attitude about raising the target federal funds rate, Chair Yellen said that removing the word patient does not mean that FOMC members are impatient about deciding when to move on interest rates.
Chair Yellen reiterated what’s she has said many times in recent FOMC statements and press conferences, that although the committee may project when it will raise rates, the decision will be based on incoming economic data.
In her opening remarks, Chair Yellen said that when the Fed does raise its target interest rate, the FOMC will retain a “highly accommodative” stance in line with the FOMC’s dual mandate of achieving maximum employment and a target inflation rate of 2.00 percent.
All in all, this FOMC statement and Fed Chair Janet Yellen’s press conference revealed no great changes in the Fed’s stated policy over the last several months. While low unemployment rates are prompting the Fed to consider raising the federal funds rate, no date for doing so has been set; the agency will provide plenty of advance notice before it raises rates and in the meantime will closely monitor domestic and global financial and economic developments for guidance in deciding when to raise rates.
Feb 27, 2015 | Market Outlook
According to the Federal Housing Finance Agency (FHFA), U.S. home prices rose by 1.40 percent for the fourth quarter of 2014 and were up by 0.80 percent month-to-month from November. The seasonally adjusted FHFA House Price Index measures purchase transactions for homes connected with mortgages owned by Fannie Mae and Freddie Mac.
FHFA also reported that home prices rose 4.9 percent year-over –year from the fourth quarter of 2013 to the fourth quarter of 2014. FHFA Chief Economist Andrew Leventis described the report for the last quarter of 2014 as “relatively strong” and also cited low inventories of available homes and improving labor markets as contributing to home price growth.
FHFA House Price Index Identifies Significant Trends
FHFA’s expanded house price data, which adds data from county records and the Federal Housing Administration, to the FHFA House Price Index, indicated that home prices grew by 1.30 percent in the fourth quarter; year-over-year home prices grew by 6.0 percent according to FHFA’s expanded house price data report.
According to purchase-only indexes for the 100 most populated metro areas, the San Francisco-Redwood City-south San Francisco, California metro area posted the highest rate of year-over-year home price gains at six percent for the fourth quarter of 2015. The lowest reading was for the El Paso, Texas, which posted a loss of 6.60 percent in the fourth quarter.
The mountain division of the nine U.S. Census divisions posted the highest annual home price growth at 5.50 percent and 1.40 percent in the fourth quarter. House price appreciation was weakest in the New England Division, where home prices fell by0.03 percent.
FHFA also reported that its “distress free” home price indexes which the agency publishes for 12 metro areas have shown less price appreciation than the FHFA purchase only Home Price Index. Distress-free means that foreclosed homes and short sales were not included in these index readings.
FHFA has expanded its home price reports with a set of reports based on three-digit zip codes. Sorting house price data by the first three digits of a zip code provides more specific data for regional home price trends; mortgage and real estate pros can find house price data for specific neighborhoods and communities. FHFA described its three-digit zip code reports as “experimental” at present.
Feb 19, 2015 | Market Outlook
Minutes of the Federal Open Market Committee (FOMC) meeting held January 27 and 28 were released on Wednesday. According to the minute’s transcript, it appears that Fed policymakers are in no hurry to raise the target federal funds rate. Members said that raising rates too soon could swamp the strengthening economy and expressed concerns that changing the committee’s current “patient” stance on rising rates could cause more harm than good to current economic conditions.
FOMC members discussed the Fed’s use of the word “patient” in its guidance, and said that dropping the word could incorrectly suggest that the Fed is planning to act sooner than later on raising the Fed’s target interest rates, and could result in “undesirably tight” financial conditions. While a majority of members agreed on protecting current economic conditions by raising rates too soon, member viewpoints varied on which conditions would support the first rate hike.
Target Inflation Rate of Two Percent “Most Consistent” with Fed’s Statutory Mandate
According to the Federal Reserve’s statutory mandate supplied by Congress, the Fed seeks to provide maximum employment, price stability and moderate long-term interest rates. The Fed established a target inflation rate of 2.00percent as a benchmark for economic health, but inflation has remained consistently below the target rate according to the annualized index reading for personal consumption expenditures.
FOMC members did not set a target rate for annual unemployment; FOMC members cited unpredictable “non-monetary factors that affect the structure and dynamics of the labor market” as reasons why it’s impossible establish an accurate target percentage rate for national unemployment. The minutes caution that these factors are sufficiently unpredictable that they may cause the Fed to revise or reverse its policies concerning national unemployment readings.
Committee members noted that short-term fluctuations in the federal funds rate could be expected. The minutes indicated that in general, day-to-day fluctuations outside of the Fed’s target range were not surprising as historical data indicated that such changes had “few if any implications for overall financial conditions or the aggregate economy.”
FOMC members agreed that the economy had expanded at a solid pace, but noted that inflation had fallen due to rapid decreases in fuel prices.
Fed/FOMC Chair Janet Yellen did not hold a post-meeting press conference at the conclusion of January’s FOMC meeting; she is scheduled to hold a press conference at the conclusion of the next FOMC meeting on March 18, 2015.
Feb 17, 2015 | Market Outlook
Last week’s economic news included an index of labor market conditions provided by the Federal Reserve, a report on small business sentiment, and a report from the Labor Department on job openings. Weekly jobless claims, Freddie Mac’s mortgage rates report and a report on Consumer Sentiment rounded out the week. The details:
Labor Market Conditions, Small Business Index Reports Fall
According to the January reading for a labor index report released by the Federal Reserve, labor market conditions declined from December’s reading of 7.3 to January’s reading of 4.9. This index is based on 19 economic indicators and January’s reading was the lowest since September. The National Foundation for Independent Business (NFIB) reported that its index of small business sentiment fell to 97.9 in January as compared to December’s reading of 100.4. Analysts said that this report reflected less optimism about business conditions and sales growth rather than concerns over spending and hiring plans.
In other labor–related news, the Labor Department reported that job openings rose to 5.03 million in December; this was 3.70 percent higher than November’s reading and represented a year-over-year increase in job openings of 28.50 percent. In contrast, all hiring for 2014 increased by 12.50 percent, which suggested that employers may be having trouble finding employees with needed job skills.
Jobless Claims Rise, but Four Week Average Shows Drop in New Claims
According to the Labor Department’s weekly Jobless Claims report, 304,000 new unemployment claims were filed, which once again positioned new jobless claims over the key benchmark of 300,000 new jobless claims filed. Analysts expected a reading of 296,000 new jobless claims based on the prior week’s reading of 279,000 new claims. To put this in perspective, new jobless claims have fallen by 3250 claims over the past four weeks to a reading of 289,750 new claims. Economists say that the four-week average is a more accurate measure of developing trends, as week-to-week readings can be volatile.
Mortgage Rates Rise
Last week’s only scheduled mortgage-related news was Freddie Mac’s weekly survey of average U.S. mortgage rates. Rates were higher with the average rate for a 30 year fixed rate mortgage higher by 10 basis points at 3.60 percent. The average rate for a 15-year fixed rate mortgage rose by eight basis points to 2.99 percent. The average rate for a 5/1 adjustable rate mortgage jumped to 2.97 percent from the previous week’s average of 2.82 percent. Average discount points were 0.60 percent for 30 and 15-year fixed rate mortgages and averaged 0.50percent for a 5/1 adjustable rate mortgage.
February’s Consumer Sentiment Index dipped as fears of rising inflation caused consumer sentiment to dip from January’s reading of 98.1 and expectations of February’s reading at 98.5; unfortunately, February’s actual reading fell short at 93.6. February’s reading was a three-month low after January’s reading hit an 11-year high. Fears of growing inflation were noted as an influence on the drop in consumer sentiment; fuel prices are rising, which will contribute to rising inflation.
What’s Ahead
No economic reports were scheduled Monday due to the President’s Day holiday. The National Association of Home Builders (NAHB) releases its housing market index report on Tuesday, Housing Starts will be released Wednesday along with the minutes of the most recent FOMC meeting. Weekly jobless claims, Freddie Mac’s mortgage rates survey and Leading Economic Indicators round out this week’s scheduled reports.
Feb 9, 2015 | Market Outlook
Last week’s economic news included construction spending, which fell shy of expectations but exceeded the prior month’s spending, and several consumer and labor-related reports. The details:
Mortgages More Accessible: Fed Survey
A Federal Reserve survey of senior loan officers at 73 U.S. banks and 23 branches of foreign banks indicated that mortgages may be more accessible. While banks eased credit standards for mortgages eligible for purchase by Fannie Mae and Freddie Mac, consumer demand for mortgages fell over the last three months. This seems puzzling given lower mortgage rates, but mortgage lending rules remain tough for borrowers with less than pristine credit.
Mortgage rates dropped last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage was 3.59 percent with discount points higher at 0.70 percent. The average rate for a 15-year fixed rate mortgage was seven basis points lower at 2.92 percent with discount points higher at 0.60 percent. The average rate for a 5/1 adjustable rate mortgage was four basis points lower at 2.82 percent with discount points unchanged at 0.40 percent.
Lower mortgage rates are great news for home buyers and homeowners seeking to refinance, but only if mortgage loans are available.
Construction Spending Higher, Consumer Spending Drops, Inflation Stalls
According to the Department of Commerce, Construction Spending rose by 0.40 percent in December against November’s reading of -0.20 percent and expectations of 0.70 percent growth. December’s reading represented $981.2 billion in construction spending on a seasonally-adjusted annual basis. Residential construction rose by 0.30 percent.
Consumer spending fell by -0.30 percent and was consistent with analysts’ expectations. This was the highest month-to-month drop in consumer spending since September 2009. Consumers spent less on vehicles and fuel. Lower fuel prices were seen as the driving force behind less consumer spending. Core personal expenditures did not increase in December. Core inflation, which excludes volatile food and energy sectors, was well below the Fed’s target annual inflation rate of 2.00 percent with a reading of 1.30 percent year-over-year.
Labor Reports: Mixed Signals
Weekly jobless claims rose to 278,000 against the prior week’s reading of 267,000 new jobless claims, but claims were lower than the expected reading of 290,000 new jobless claims. Nonfarm payrolls for January were higher in January at 257,000 jobs added. Analysts expected only 230,000 new jobs added in January based on December’s reading of 267,000 jobs added.
ADP Payrolls reported 213,000 private sector jobs added in January against December’s reading of 253,000 private sector jobs added. January’s lower reading is likely based on seasonal hiring during the holiday season. National Unemployment rose from December’s reading of 5.60 percent to 5.70 percent. In recent months national unemployment rates have fallen below the Fed’s target reading of 6.50 percent.
What’s Ahead
This week’s scheduled economic reports include data on retail sales, job openings, labor market conditions and weekly reports on new jobless claims and Freddie Mac’s survey of mortgage rates.
