A wide range of events influenced mortgage rates this past week, including comments from the new Fed Chair, government policy changes, and surprises in the economic data. In the end, however, these were offsetting, and mortgage rates finished the week with little change.
On Tuesday, Jerome Powell gave his first testimony to Congress as Fed Chair. His comments caused investors to raise their expectations for the pace of rate hikes, which was negative for mortgage rates. He said that “my personal outlook for the economy has strengthened since December.” He also predicted that inflation would rise to the Fed’s target level of 2% “over the medium term” and that “wages should increase at a faster pace as well.” Investors expect a 25 basis point rate hike at the next Fed meeting on March 21.
The biggest surprise in last week’s economic data came from the manufacturing sector. The ISM national manufacturing index unexpectedly climbed to 60.8, which matched the highest level since 2004. Readings above 50 indicate an expansion in the sector. Since faster economic growth raises the outlook for future inflation, this data was unfavorable for mortgage rates.
On Thursday, President Trump announced that he would impose global tariffs on steel and aluminum imported into the U.S. Concerned that other countries might retaliate and a trade war might develop, investors sold stocks and shifted assets into bonds, including mortgage-backed securities (MBS). The added demand for MBS was good for mortgage rates.
Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national services index will be released on Monday and Factory Orders will come out on Tuesday. In addition, the next European Central Bank meeting will take place on Thursday and could influence U.S. mortgage rates.
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