Updated on September 17, 2019 10:20:24 AM EDT
Today’s only relevant economic data was Augusts Industrial Production report at 9:15 AM ET. It revealed a 0.6% jump in output at U.S. factories, mines and utilities, exceeding forecasts of up 0.1% by a fairly wide margin. Since that is a sign of manufacturing sector strength, we should consider the data bad news for bonds and mortgage rates. Fortunately, this is not one of the more important reports we get each month. Therefore, we haven’t seen a noticeable reaction to the news.
Tomorrow will be a busy day, but not a result of economic data. Augusts Housing Starts report that tracks groundbreakings of new home projects will be released at 8:30 AM ET tomorrow morning. It likely will not affect mortgage rates unless its results vary greatly from forecasts. It is expected to show that starts of new homes rose last month, indicating strength in the housing sector. That is bad news for the bond market and mortgage rates because a stronger housing sector makes broader economic growth more likely. However, this data is not important enough to cause a noticeable change in mortgage rates unless there is a wide variance between forecasts and the actual results.
Things won’t get too interesting until mid-afternoon when the FOMC meeting adjourns at 2:00 PM ET. The Fed is expected to make a quarter-point cut to key short-term interest rates. Some analysts are calling for a half-point move. Also at 2:00 PM, they will release their revised economic projections for the U.S. The markets are interested in whether Chairman Powell and friends think economic conditions will be stronger or weaker in the coming months and years than previously thought. Key readings the markets will be looking for are the unemployment rate, inflation and overall GDP growth. Downward revisions by the Fed will be good news for bonds and mortgage pricing because it would mean another reduction to key short-term interest rates before the end of the year may happen. On the other hand, upward revisions that indicate the economy is likely to be strong enough that they will not need to reduce rates again this year could cause bond selling and an increase to mortgage rates.
The adjournment, post-meeting statement and economic projections will be followed by a press conference with Chairman Powell at 2:30 PM ET. All Fed meetings are highly important, but this one is particularly significant for the financial and mortgage markets due to the uncertainty of what exactly the Fed will do now and what future monetary policy moves are expected in the near future. Analysts and market traders will be watching his words carefully for any indication on what the Feds plans are. Any question or answer at the press conference can impact the markets, so there is a decent chance of seeing quite a bit of volatility tomorrow afternoon.
©Mortgage Commentary 2019