This week brings us the release of only three monthly economic reports, none of which are considered to be highly important. The main focus of the week will be the Federal Reserve and their mid-week events. We can expect to see some portfolio positioning as that day comes closer, meaning the next couple of days could still bring changes to mortgage rates despite the lack of important data.
August's New Home Sales will start this week’s activities late Tuesday morning. The Commerce Department is expected to say that sales of newly constructed homes fell last month, indicating softness in the new home portion of the housing sector. This report will likely not have a noticeable impact on mortgage rates unless its readings differ greatly from forecasts. This is the week's least important report in terms of potential impact on mortgage rates, partly because it covers only the small portion of all homes sales that the Existing Home Sales report does not.
The big events of the week will come from the Fed Wednesday afternoon. They start with the FOMC meeting that may or may not bring an increase in key short-term interest rates, which will adjourn at 2:00 PM ET. There is a small chance of the Fed raising rates at this meeting. It is my opinion that they will hold off making a move at this time, opting to wait for more economic data domestically and internationally. There is a November FOMC meeting, but the Fed traditionally does not make a monetary policy move around a Presidential election. Therefore, if no increase comes this week, it likely will not come until at least December’s meeting.
Also at 2:00 PM ET Wednesday, the Fed will release their revised economic projections for the U.S. The markets are interested in whether Janet Yellen and friends think economic conditions will be stronger or weaker in the coming months and years than previously thought. Key readings the markets will be looking for are the unemployment rate, inflation and overall GDP growth. Downward revisions by the Fed will be good news for bonds and mortgage rates because it would mean a December rate hike may not be a sure thing after all. On the other hand, upward revisions that indicate the economy is likely to support a Fed rate hike could cause bond selling and an increase to mortgage pricing.
The adjournment, post-meeting statement and economic projections will be followed by a press conference with Fed Chair Yellen at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets due to the uncertainty of when the Fed will make another monetary policy move. Analysts and market traders will be watching her words carefully for any indication on the likelihood of a rate hike later this year (assuming one was not made at this meeting). Any question or answer at the press conference can impact the markets, so there is a decent chance of seeing quite a bit of volatility Wednesday afternoon.
August's Existing Home Sales from the National Association of Realtors will be posted late Thursday morning. This report will give us an indication of housing sector strength by tracking home resales in the U.S. It is expected to show an increase from July's sales, indicating the housing sector strengthened last month. A housing sector that is growing stronger makes broader economic growth more feasible, making the data bad news for bonds and mortgage rates.
The final report of the week will come from the Conference Board who will post their Leading Economic Indicators (LEI) for August late Thursday morning also. The moderately important LEI index attempts to measure economic activity over the next three to six months. It is expected to show a 0.1% increase, meaning that it is predicting modest growth in economic activity over the next several months. A larger increase would be considered negative news for bonds and could lead to a small increase in mortgage rates Thursday.
Overall, Wednesday is clearly the most important day of the week, particularly the afternoon hours. Friday is the best candidate for calmest day for mortgage rates. I believe we are going to see a fair amount of volatility in the markets and mortgage pricing this week.