Inflation Outlook Helps Rates

The Fed Minutes released on Wednesday had a positive impact on mortgage rates. In addition, concerns about the pace of global economic growth reduced inflation expectations, which also was favorable for mortgage rates. As a result, mortgage rates ended lower. 

The Minutes from the July 29 Fed meeting revealed that Fed officials have mixed views about when to raise the federal funds rate. The Minutes conveyed that most Fed officials agree that conditions for tightening are close to being met, but many officials remained reluctant to commit to a rate hike at the next meeting on September 17. One reason cited for waiting is that the inflation rate has remained below the Fed's target level for several years, and the Fed lowered its forecast for future inflation. In addition, some Fed officials pointed out that a slowdown in China likely would reduce global inflationary pressures. Since mortgage rates rise and fall with changes in inflation expectations, this was good news for mortgage rates. 

In July, housing starts rose to the strongest reading since October 2007, and they were 10% higher than a year ago. Building permits, a leading indicator, were 8% higher than a year ago. The August NAHB Housing Index showed that home builder confidence increased to levels last seen in November 2005. 

Looking ahead, New Home Sales will be released on Tuesday. Durable Orders, an important indicator of economic activity, will come out on Wednesday. Pending Home Sales and the second estimate of second quarter GDP will be released on Thursday. The Core PCE price index, the Fed's preferred inflation indicator, will come out on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 

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