During a light week for economic data, rapidly shifting headlines about additional government stimulus caused some volatility for mortgage markets. The net effect was minor, however, and rates ended the week nearly flat near record low levels.
Lawmakers remain divided about additional fiscal stimulus measures, and the outcome of the negotiations will be extremely important to mortgage rates for a couple of reasons. First, government spending increases economic activity, which raises the outlook for future inflation. In addition, the supply of bonds goes up to fund the spending. Since both of these consequences are negative for mortgage rates, news of a new stimulus deal likely would cause them to rise.
The most significant economic report released this week was the national services index from the Institute of Supply Management (ISM). In September, this index unexpectedly increased to 57.8, far above the level of 41.8 seen in April following the partial shutdown of the economy. Readings above 50 indicate an expansion. Services account for more than two-thirds of US economic activity, and this marked four straight months of solid recovery in the sector.
The minutes from the September 16 Fed meeting released on Wednesday revealed that officials were upbeat about the unexpectedly “rapid” pace of the economic recovery in recent months. However, many expressed concern that a lack of additional government stimulus could reduce the outlook for future economic activity. The minutes also repeated the Fed’s commitment to do everything it can to support the recovery for as long as necessary.
Investors will remain focused on medical advances to fight the coronavirus and negotiations for additional government fiscal stimulus measures. Beyond that, the Consumer Price Index (CPI) will come out on Tuesday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Retail Sales will be released on Friday. Since consumer spending accounts for over two-thirds of all economic activity in the US, the retail sales data is a key indicator of growth. Mortgage markets will be closed on Monday for Columbus Day.
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