Weekly Economic Update – 5.08.17

We saw a few events last week that caused rates to react negatively.  One being Wednesday’s Fed meeting, and the other the success of French presidential candidate Macron in the polls for their election.  Surprisingly, Friday’s Employment report had little impact.  As a result, mortgage rates ended the week a little higher.

As expected, the Fed made no change in the federal funds rate at Wednesday’s meeting.  There also was no change in the language describing the Fed’s policy for maintaining a steady level for its large portfolio of Treasuries.  According to the statement, Fed officials see the risks to the outlook for economic growth as “roughly balanced,” and they expect inflation to climb to its 2.0% target over the medium term.  Fed officials think that the weak economic growth seen early this year likely was “transitory.”  Some investors had hoped that the weaker data over the last couple of months might cause the Fed to consider slowing its pace of tightening.  The statement provided no indication of this, which was negative for mortgage rates.

The pro-EU candidate in Sunday’s French Presidential election, Macron, cleared his largest remaining hurdle on Wednesday when he performed well in a debate.  Over the past week, he has held a lead of roughly 60% to 40% over the anti-EU candidate, Le Pen. After the debate, investors grew less concerned that France could exit the European Union (EU).  They reacted by shifting back to riskier assets such as stocks, and away from safer assets such as mortgage-backed securities, causing a slight increase in mortgage rates.

Friday’s important Employment report came in right on target and had little effect on financial markets.  Against a consensus forecast of 190K, the economy added 211K jobs in April.  The unemployment rate declined from 4.5% to 4.4%, below the consensus forecast, and the lowest level since May 2007.

Looking ahead, the big day will be Friday with the Retail Sales and CPI reports.  Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator.  The Consumer Price Index (CPI), a widely followed monthly inflation report, looks at the price change for goods and services which are purchased by consumers.

Please reach out with any questions in regards to this, or if there is anything we can do for you and your valued clients.

Thank you for your continued support, have a productive week.

Stuart Crawford
SVP, Regional Manager
THE CRAWFORD TEAM
V.I.P. Mortgage, Inc.
(480)776-2954
scrawford@vipmtginc.com

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