Overview: With President Trump’s positive COVID-19 test, the release of major economic data, and rapidly shifting headlines about additional government stimulus, it was a volatile week for mortgage rates. The net effect of these events was small, however, and rates remained close to record-low levels.

The latest labor market data showed that the significant rebound from enormous job losses this past spring has continued. In September, the economy gained an impressive 661,000 jobs, and revisions to the results for prior months added another 145,000. The economy has now recovered approximately half of the 22 million jobs lost in March and April. In addition, the unemployment rate dropped more than expected to 7.9%, down from nearly 15% in April, but still well above the rate of just 3.5% in February. Average hourly earnings were 4.7% higher than a year ago, up from an annual rate of 4.6% last month.

The reduced economic activity resulting from the pandemic has caused a decline in inflation, which has helped keep mortgage rates low. In August, the core Personal Consumption Expenditures (PCE) Price Index, the inflation indicator favored by Federal Reserve officials, was just 1.6% higher than a year ago, up from an annual rate of increase of 1.4% last month. According to the Fed, their target is for inflation to average 2% per year.

The minutes from the September 16 Fed meeting released on Wednesday confirmed that officials plan to keep the federal funds rate near zero and to use other available tools to provide maximum support for the economy for quite a while. Officials expressed concern that a lack of additional government stimulus would negatively impact economic activity.

Week Ahead

Investors will continue to focus on government stimulus measures and medical advances to fight the coronavirus. Beyond that, the Consumer Price Index (CPI) will come out on October 13. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. The Retail Sales report will be released on October 16. Since consumer spending accounts for over two-thirds of all economic activity in the U.S., the retail sales data is a key indicator of growth.

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