Stimulus, Fed, Retail Sales 

A wide range of major economic news caused some volatility for mortgage rates this week. However, the net effects of a proposed new stimulus package, Fed speeches, and disappointing consumer spending data were roughly offsetting, and mortgage rates ended with little change. 

On Thursday, President-elect Biden released the details of a $1.9 trillion coronavirus rescue package intended to assist households and businesses during the pandemic. Some elements of the proposal include additional direct payments of $1,400 to most Americans, increasing unemployment benefits and the minimum wage, and extending eviction and foreclosure moratoriums until the end of September. If passed, additional bonds will need to be issued to fund the spending, so news of this stimulus plan was negative for mortgage rates. 

The reduced economic activity resulting from the pandemic has caused a decline in inflation, and the latest report confirmed that current levels remain low. The Consumer Price Index (CPI) is a widely followed monthly inflation report that looks at the price change for goods and services. In December, core CPI was just 1.6% higher than a year ago, the same annual rate of increase as last month.

Several Fed officials gave speeches this week, and their basic message was consistent. As was stated in the most recent policy statement, officials plan to keep an accommodative stance until there is "substantial further progress" toward their employment and inflation goals. According to Chair Powell on Thursday, raising the federal funds rate will not take place any time soon. Essentially, there will be no reason to tighten monetary policy unless inflation rises substantially "in ways that are unwelcome."

Looking ahead, investors will continue watching Covid case counts and vaccine distribution. Beyond that, it will be a light week for economic data which will feature the housing sector. Housing Starts will be released on Thursday and Existing Home Sales on Friday. Mortgage markets will be closed on Monday in observance of MLK Day.