Overview: Recent economic data such as consumer spending has shown few signs that economic growth is slowing. Federal Reserve officials responded at the meeting this week by scaling back their projections for future rate cuts. As a result, mortgage rates moved higher.
Investors viewed a rate cut at Wednesday’s Fed meeting as essentially a sure thing, so they were more interested in guidance about future monetary policy. As expected, the Fed reduced the federal funds rate by 25 basis points to a target range of 4.25% to 4.50%, and the changes to the meeting statement were relatively minor. According to the statement, the risks to achieving the employment and inflation goals are "roughly in balance." The key at this meeting was the “dot plot” projections from officials for future rate reductions. The last dot plots released three months ago showed expectations for four additional 25 basis-point rate cuts in 2025, but the latest figures dropped this to just two 25 basis-point cuts next year. Most investors now anticipate that the Fed will not cut rates again at the next meeting on January 29. As a reminder, expected news such as the rate cut this week rarely has much impact on mortgage markets, but a change such as the future outlook for the federal funds rate, which caught some investors by surprise, generally does cause a significant reaction.
Many forecasters have been predicting a slowdown in spending by consumers due to higher prices and credit card rates, but the latest report indicated that consumer spending remains unexpectedly strong. In November, retail sales rose a substantial 0.7% from October, above the consensus forecast of 0.5%, and were 3.8% higher than a year ago. Some of the categories displaying strength included autos, online merchants, and sporting goods/hobbies. This report hints at a strong holiday shopping season this year.
While the headline figure for overall housing starts in November revealed an unexpected decline from October, the details of the report were more encouraging. The weakness was entirely due to volatile multi-family units, which plunged 24% from October, while single-family housing starts rose 6%. Single-family building permits, a leading indicator of future construction, were close to the expected levels.
While the headline figure for overall housing starts in November revealed an unexpected decline from October, the details of the report were more encouraging. The weakness was entirely due to volatile multi-family units, which plunged 24% from October, while single-family housing starts rose 6%. Single-family building permits, a leading indicator of future construction, were close to the expected levels.
Retail Sales (% change)
Week Ahead
Dec. 19
Existing-Home Sales report
Dec. 20
Personal Income and Outlays
Personal Consumption Expenditures (PCE) Price Index
Dec. 24
New-Home Sales report
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