Overview: Despite some major economic news, mortgage markets remained relatively quiet over the past week. Wednesday’s Federal Reserve meeting caused surprisingly little reaction, and the consumer spending data also had little impact. Mortgage rates ended the week nearly unchanged, remaining near the lowest levels since early 2023.
Heading into Fed meetings, investors generally agree on what they expect the Fed to do. Wednesday’s meeting was a rare exception, however, as investors were nearly evenly split about what size the rate cut would be. The Fed opted for a larger 50 basis-point rate reduction rather than one of just 25 basis points. According to the statement released after the meeting, officials have gained “greater confidence” that inflation is moving “sustainably” toward their target level of 2% annually. In addition, they judge that the risks to their employment and inflation goals are “roughly in balance.” The “dot plot” forecasts from officials project that there will be another 50 basis points of rate cuts before the end of this year and an additional 100 basis points in reductions by the end of 2025, which is reasonably close to the outlook priced in by investors.
After a much larger than expected increase last month, consumer spending returned to more normal levels in August. Retail sales rose 0.1% from July, which is above the consensus forecast, and were 2.1% higher than a year ago. Looking at individual categories, personal care, sporting goods, and building materials showed the strongest gains, while clothing, appliances, and furniture displayed weakness.
Last month, the impact of Hurricane Beryl helped push housing starts down to the lowest level since the middle of 2020. However, the latest results revealed that the rebound was even stronger than expected. In August, overall housing starts jumped 10% from July, which exceeded the consensus forecast. Single-family housing starts surged an even greater 16% from July and were 5% higher than a year ago. Single-family building permits, a leading indicator of future construction, also increased significantly more than forecasted.
On Thursday, the European Central Bank (ECB) reduced benchmark interest rates by 25 basis points, as expected. The statement released after the meeting again said that future monetary policy decisions will be based on incoming economic data, while providing no specific guidance. Investors anticipate that there will be one additional 25 basis-point rate cut by the ECB before the end of the year.
Retail Sales (% change)
Week Ahead
Sept. 19
Existing-Home Sales report
Sept. 24
Consumer Confidence Index
Sept. 25
New-Home Sales report
Sept. 27
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index
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