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This week, investors were laser focused on Wednesday's Fed meeting, and a lengthy period of extreme volatility began immediately after the release of the unexpectedly hawkish meeting statement. When the dust settled, mortgage rates ended moderately higher.
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As expected, the Fed did not change the federal funds rate or adjust the size of its monthly bond purchases. However, many officials changed their projections on the outlook for future monetary policy due to the rapid improvement in the economy and the resulting rise in inflation. Thirteen out of eighteen officials now anticipate that the Fed will begin raising the federal funds rate before the end of 2023, up from just seven in the prior set of forecasts in March. This change in the expected time frame for rate hikes caught investors off guard. Just as very dovish (loose) monetary policy helped mortgage rates decline to record low levels last year, this news about a quicker shift to more hawkish (tighter) policy caused them to increase.
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The first Fed official to speak publicly after the meeting was James Bullard, and his comments on Friday also were more hawkish than expected. He emphasized that the reopening of the economy has been stronger than he anticipated, which is great news. However, he noted that with this comes increased inflationary pressures, so the Fed may need to tighten sooner. He said that he thinks the first rate hike possibly could take place by the end of 2022.
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The most significant economic data released this week, the Retail Sales report, was pretty much in line with the expected levels and had little impact. In May, retail sales fell 1.3% from April, which was below the consensus forecast, but the results for April were revised higher by an amount which offset the shortfall in May. The decline for the month does not reflect a drop in overall consumer spending. Rather, consumers have been shifting their spending from goods, which are included in retail sales, to services such as dining out and travel, which are not.
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Looking ahead, investors will continue watching global Covid case counts and vaccine distribution. Beyond that, Existing Home Sales will come out on Tuesday and New Home Sales on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday.
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| Weekly Change |
| 10yr Treasury |
rose |
0.05 |
| Dow |
fell |
900 |
| NASDAQ |
fell |
100 |
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| Calendar |
| Tue |
6/22 |
Existing Sales |
| Wed |
6/23 |
New Home Sales |
| Fri |
6/25 |
Core PCE |
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All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
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