While the most of the economic data released during the week matched expectations, the outlook for future economic growth improved due to strong earnings reports, tame inflation data, and a revised forecast from the Fed.
Stronger economic growth was good news for the stock market, and the Dow rose over 500 points. It was unfavorable for the bond market, however, and mortgage rates ended the week moderately higher.
On Wednesday, the Fed released its minutes from the June 24 FOMC meeting, and most of the news was negative for mortgage rates. The minutes revealed an upward revision to the Fed’s forecast for economic growth and inflation in 2009 and 2010.
In addition, Fed officials expressed a strong reluctance to increase any further the program to purchase mortgage-backed securities (MBS). Mortgage rates are largely determined by MBS prices. When the Fed initially announced its MBS purchase program in November, mortgage rates immediately dropped, and they dropped again significantly when the Fed announced an increase in the program in March.
The Fed has a substantial involvement in MBS markets, and any change in this program would have a major impact on mortgage rates.
Inflation Data:
- June Core CPI inflation rose at a low 1.7% annual rate
- After falling below $60 per barrel, oil prices rose back to $63 per barrel
- The Fed purchased $22 billion in agency MBS during the week ending 7/15
Look for continued volatility in mortgage rates for the short term.
Terry Brunner is a Senior Loan Officer with Horizon Financial, Inc. He can be reached toll free @ (877) 627-9211 x150 or TBrunner@HorizonFinancial.org .
