This week has only two relevant monthly economic reports but also has a slew of other events scheduled that are likely to affect mortgage rates. Both of the economic releases are considered to be important and come late in the week. The other events include the minutes from the most recent FOMC meeting, two days of congressional testimony by Fed Chairman Powell and a couple of Treasury auctions. The week starts off light with nothing of importance set for tomorrow or Tuesday. Despite the easy early days, we still will likely have an extremely active week for mortgage rates due to the importance of what is taking place the mid and latter days.
Wednesday starts with day one of the Fed's two-day semi-annual congressional update on the economy and monetary policy. Fed Chairman Powell will speak to the House Financial Services Committee Wednesday at 10:00 AM ET and the Senate Banking Committee Thursday morning. His testimony will be broadcast and watched very closely. Analysts and traders will be looking for the Fed's opinion on the status of the economy and their expectations of future growth, inflation, unemployment and the potential need for rate cuts. These topics should create a great deal of volatility in the markets during the prepared testimony, which is often released prior to appearing, and the Q&A session that follows. Over the past several years, the markets were watching for signs of when the Fed may raise key short-term interest rates. Recently though, focus has changed to possible rate cuts due to concerns about economic growth and weaker than preferred inflation. If he indicates that a rate cut could be near, we should see the bond market rally and mortgage rates fall Wednesday.
We usually see the most movement in the markets and mortgage rates during the first day of this testimony. This is because the speaker's prepared words for both appearances are quite similar to each other, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day's appearance.
The first of this week's two important Treasury auctions will also take place Wednesday when 10-year Notes will be sold. That sale will be followed by a 30-year Bond auction Thursday. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly Wednesday's sale, we could see afternoon improvements in bonds that may lead to downward revisions to mortgage rates. However, if buyers stay on the sidelines, bonds may fall after results are posted at 1:00 PM ET and mortgage rates move higher those days.
Also Wednesday afternoon is the release of the minutes from the last FOMC meeting. There is a possibility of the markets reacting to them following their 2:00 PM ET release. I don't believe that they will reveal anything surprising from the last FOMC meeting. Market participants will be looking for any indication of when the Fed will make their next rate move. The minutes will tell us how members voted for related motions and could cause some volatility in the markets if there is anything unexpected in them.
The first economic data of the week is June's Consumer Price Index (CPI) at 8:30 AM ET Thursday. This is very important data because it measures inflationary pressures at the consumer level of the economy. It is expected to show no change in the overall reading and a 0.2% increase in the core data. The core reading is the more important of the two since it excludes more volatile food and energy prices, revealing a more reliable inflation reading. The bond market should react favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send mortgage rates higher early Thursday.
Next up is June’s Producer Price Index (PPI) early Friday morning. This is a mirror of Thursday's PPI with the exception that this report measures inflation at the producer or manufacturing level of the economy. Analysts have forecasted no change and a 0.2% increase in these readings also. As with the CPI, stronger than expected readings could raise future inflation fears and push mortgage rates higher, while readings that fall short of forecasts should lead to lower rates early Friday.
Overall, Wednesday is the key day of the week due to Chairman Powell’s testimony, 10-year Note auction and FOMC minutes. Thursday may also be a day with noticeable movement in rates as a result of the CPI release. The calmest day of the week could be tomorrow or Tuesday. Chairman Powell’s calendar shows a speaking engagement Tuesday morning, but it is related to banking rules and likely will not affect mortgage rates.