Mortgage Rates Change After Feds Meeting 1-31-2018

By James Brooks

This week?s FOMC meeting has adjourned with no change to key short-term interest rates, as was expected. The post-meeting statement didn?t reveal any major surprises, but the language used differed a little from the previous adjournment when addressing expected inflation benchmarks. The change indicates that the Fed feels the 2.0% annual rate of inflation is more likely to be reached than it was last meeting.

There was nothing in this statement that should bring too much concern nor get too excited about. The stock markets are down slightly from their pre-adjournment levels but they had lost ground from morning levels long before 2:00 PM ET. The Dow is currently up 116 points while the Nasdaq is currently up 20 points. The bond market is now down 9/32 (2.75%), which should be enough of a move for some lenders mortgage rates by .125 of a discount point.

January?s ADP Employment report was released at 8:15 AM ET this morning, revealing an increase of 234,000 private sector jobs. This was stronger than expected, indicating employment sector strength that makes the data negative for bonds and mortgage rates. We will get January?s complete employment picture in Friday?s governmental Employment report.

The 4th Quarter Employment Cost Index (ECI) was posted at 8:30 AM ET this morning. It showed a 0.6% increase, matching forecasts. This index measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. Ideally, the bond market would prefer to see a smaller rise, but the fact there was no surprise in the reading made it a non-factor in today?s bond trading and mortgage pricing.

Tomorrow morning has two minor pieces of economic data scheduled for release along with a major report. The first is last week's unemployment update at 8:30 AM ET that is expected to show 238,000 new claims for unemployment benefits were filed last week, up from the previous week's 233,000 initial claims. This report usually doesn't cause much movement in the markets or mortgage rates unless it shows a significant jump or drop in initial claims for benefits. The higher the number of claims, the better the news it is for bonds and mortgage rates because rising claims is a sign of a softening employment sector.

Employee Productivity and Costs data for the 4th quarter will also be released early tomorrow morning. It can cause some movement in the bond market, but should have a minimal impact on mortgage pricing tomorrow. Good news would be the productivity reading showing a much stronger increase than the 1.0% that is forecasted. That is because higher levels of worker productivity allow the economy to expand while keeping inflation subdued.

The big news of the day will be the Institute of Supply Management's (ISM) manufacturing index for January at 10:00 AM ET. This index tracks manufacturer sentiment by rating surveyed trade executives' opinions of business conditions. It is usually the first economic data released each month and is one of the very important reports we get monthly. Current forecasts are calling for a reading in the neighborhood of 58.5, which would be a decline from December's reading of 59.7. The lower the reading, the better the news for the bond market and mortgage rates because weaker sentiment indicates a slowing manufacturing sector.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now.

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