Interest Rate Outlook

Article Credit to John Councilman – National Association of Mortgage Brokers

Janet Yellen is not out of the running for another term as chair of the Federal Reserve.  President Trump plans to interview her this week about the possibility of staying on.  Yellen is only one of a number of people who have been mentioned as contenders for the position, including National Economic Council Director Gary Cohn, Federal Reserve Bank of Minneapolis President Neel Kashkari, Fed Governor Kevin Warsh and economist John Taylor.

Meanwhile, the Federal Reserve has started its taper of buying mortgage-backed securities.  Purchases will be limited to 9.7 billion for the October 16-27 period.  That is down about $4 billion from previous periods.  It is too early to tell the impact.

This week the big news was weekly jobless claims.  It appears very few people are getting laid off.  First-time claims came in at 222,000, the lowest level since 1973.  Economists are explaining that the hurricane recovery created many jobs, some possibly temporary.

Most of the other economic news for the week was good, for the economy but not particularly good for rates.  U.S. industrial production rose .3% in September despite disruptions caused by major hurricanes.  NAHB Housing Index, which measures builder sentiment, was up to 68 from 64.  The Philadelphia Fed survey, an indication of manufacturing activity in the all- important Mid-Atlantic region, printed at 27.9. Traders were expecting a read of 20.  Very hot.

There were two negative trends.
Leading Economic Indicators (LEI) fell 0.2%. Economists’ expectations were for LEI to rise 0.1%.

Housing starts decreased 4.7 percent and permits dropped 4.5%.  Some of this can be attributed to the hurricanes but some worry we may be seeing a new-home slowdown.  The good news is single-family home starts were up 1.7%.

With stocks above 23,000, it is surprising bonds have done as well as they have.  But, inflation is dead and that trumps stock competition.  Right now, we about ½ point worse than the best levels of the month, trending toward rate improvement.