With little news, mortgage rates barely moved for the first four days of last week. Friday’s weaker than expected GDP data was favorable for mortgage rates, however, and caused rates to end the week a little lower.
GDP, which measures all the goods and services produced in the US, is the broadest measure of economic growth. First quarter GDP increased at a 2.5% rate, which was below the consensus forecast, but was up from 0.4% in the fourth quarter. Strength was seen in consumer spending and residential investment. Most economists expect that GDP growth will be a little slower for the rest of the year and will be around 2.0% for all of 2013. This pace is consistent with a slowly improving labor market and tame inflation.
From the start of the year until early March, expectations for stronger economic growth and concerns about an early end to the Fed’s bond buying program caused mortgage rates to increase. Since then, however, mortgage rates have fallen back to the lowest levels of 2013. The actions of central banks around the world have been a major reason for the recent decline in rates. Most Fed officials have downplayed the likelihood that the Fed will scale back its bond purchases any time soon. In addition, central banks in Japan and Europe appear to be embracing the Fed’s approach for boosting economic growth. Early in April, Japan announced a massive increase in its level of bond purchases. Investors expect that the European Central Bank (ECB) may be close to announcing looser monetary policy as well, possibly as soon as next week. Each time that a central bank has announced an increase in bond purchases, the added demand has lifted global bond prices, including US mortgage-backed securities (MBS). Since mortgage rates are mostly determined by MBS prices, central bank bond buying programs have been favorable for mortgage rates.
This week will be packed with major economic news. There will be a Fed meeting on Wednesday. Investors will be looking for updates about the economy and the bond buying program. This will be followed by an ECB meeting on Thursday. Many investors expect the ECB to announce a rate cut or a new stimulus program. The biggest economic report this week will be the important Employment data on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before the employment data, the schedule will be very busy with ISM Manufacturing, Core PCE inflation, Pending Home Sales, and many other reports.
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