Mortgage Rates Rise 

This week, investors were focused on Wednesday's Fed meeting. Though there were no significant surprises, the reaction was negative for bonds, and mortgage rates ended the week higher.

Against this backdrop, investors primarily were looking for guidance in two areas. First, when will the Fed taper its massive bond purchase program? Based on the meeting, investors now expect that it will begin to scale back (taper) its bond buying in either November or December of this year. According to the meeting statement, "a moderation in the pace of asset purchases may soon be warranted." The second question is when the Fed will begin to raise the federal funds rate, which would be a more significant policy change than tapering. Of the eighteen officials, nine currently think that the first rate hike will take place in 2022 and nine in 2023. This is a slightly faster timeline on average than in the prior set of projections.

Given the critical need for more homes in many areas, investors have been closely watching the monthly reports on housing starts, and the latest data contained mixed news. In August, overall housing starts rose 4% from July, which was well above the consensus forecast. However, the strength was seen entirely in multi-family units, while single-family starts declined from July. Rising prices and shortages for land, materials, and skilled labor remained obstacles to a faster pace of construction.

Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, Durable Orders will come out on Monday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. The ISM national manufacturing index, Personal Income, and Construction Spending also will come out on Friday. The key Employment report will be released on October 8.