Wednesday’s Fed meeting overshadowed the other economic news last week, but it provided no surprises and had little net effect. Stronger than expected housing data also had just a minor impact, and mortgage rates ended the week a little lower.
The Fed cut the federal funds rate by 25 basis points, as expected, and its statement contained few changes from the prior one. The main takeaway from the meeting was that Fed officials remained divided about the outlook for the economy and appropriate monetary policy. While seven out of ten officials voted in favor of the cut, two preferred no change, and one supported a larger 50 basis point reduction. According to Fed Chair Powell, a number of potential risks have made the forecast for U.S. growth more uncertain. Most notably, global growth has been weakening, and trade tensions have been slowing manufacturing activity. Overall, the meeting provided little new information to cause investors to alter their outlook for future Fed policy.
This week’s news from the housing sector was encouraging. In August, sales of existing homes increased more than expected from July to the strongest level since March 2018 and were modestly higher than a year ago. The national median existing-home price was up 5% from a year ago. The main trouble spot again was a lack of homes for sale in many regions. Inventory levels nationally were at just a 4.1-month supply and were 3% lower than a year ago.
Additional supply may be on the way, however. In August, housing starts jumped 12% from July to the strongest level since June 2007, with improvement in both the single-family and multi-family segments. Starts were 7% higher than a year ago. Similarly, building permits, a leading indicator of future construction, rose 8% from July to the best level since May 2007.
Looking ahead, New Home Sales will come out on Wednesday and Pending Home Sales on Thursday. The core PCE price index, the inflation indicator favored by the Fed, and Durable Orders will be released on Friday. In addition, news about the trade negotiations could influence mortgage rates.
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