The big event this week was Wednesday’s Fed meeting. A dovish Fed statement was positive for mortgage rates. The economic data released over the past week closely matched expectations, so it had little impact. Mortgage rates ended the week lower.
The U.S. Fed made no change in the federal funds rate, as expected. There were few changes in the statement from the last statement following the March meeting. In the statement, the Fed acknowledged that the labor and housing markets continued to improve, but they said that overall economic activity “appears to have slowed.” The statement also removed language about inflation increasing in recent months. The dovish statement, meaning that the Fed favors keeping monetary policy loose for longer, caused mortgage rates to improve after its release.
The recent economic data supports the comments in the Fed statement. The March core PCE price index, the inflation indicator favored by the Fed, was just 1.6% higher than a year ago, down from an annual rate of 1.7% in February. In March, pending home sales, which measure signed contracts to buy previously owned homes, rose to the highest level since May 2015. Pending home sales are viewed as a leading indicator for the existing home sales report, which measures closings.
Gross domestic product (GDP), the broadest measure of economic activity, grew just 0.5% during the first quarter, down from 1.4% during the fourth quarter. This continues the pattern of weak first quarter growth during the last several years, though. The consensus is for stronger growth during the next three quarters, resulting in growth of about 2.0% for 2016.
Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will be released on Monday, and the ISM national services index will come out on Wednesday.
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