Economic Commentary October 26, 2016

European Central Bank Postpones Decision

There were few surprises in economic news over the past week. Mortgage rates ended the week slightly higher, and neither central bankers nor recent data caused much market reaction in the U.S.

Bond purchases by central banks around the world have helped mortgage rates decline in recent years. As a result, comments from global central bankers often have a significant affect on U.S. mortgage rates. This was not the case for the October 20 European Central Bank (ECB) meeting, however. The ECB made no policy changes, and ECB President Draghi unexpectedly signaled to investors that they will have to wait until the next meeting on December 8 for new guidance on monetary policy. He said that the ECB will decide at that meeting whether to extend the bond purchase program, which is currently set to end in March. Most investors expect that the ECB will announce an extension to the program.

The recent U.S. housing data has been encouraging. In September, sales of previously owned homes rose 3% from August and are near the highest level since 2007. This took place despite a shortage of inventory in many regions. Sales of previously owned homes make up roughly 90% of the housing market. Sales of newly built homes also rose 3% from August and also are near the highest level since 2007. They were 30% higher than a year ago.

Looking ahead, several significant U.S. economic reports will soon be released, followed by two central bank meetings. Durable Orders will be released on Thursday. Third quarter Gross Domestic Product (GDP), the broadest measure of economic growth, will come out on Friday. The Core PCE price index, the inflation indicator favored by the Fed, will be released on October 31. A Bank of Japan (BOJ) meeting will take place on November 1. The next U.S. Fed meeting will take place on November 2, but no change in policy is expected.

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