Quiet Week

As is often the case, Christmas week was extremely quiet. The economic data caused little reaction. Mortgage rates ended the week with little change.

The core personal consumption expenditures (PCE) price index is the inflation indicator favored by the Fed. Core PCE excludes the volatile food and energy components. The Fed has a stated inflation target of 2.0%, and Fed officials have suggested in recent comments that they expect inflation to gradually climb to their target. Thursday's release of the data for November raised some questions on this front.

For nearly half a year, the annual rate for core PCE held steady. Then, it climbed in both September and October, reaching the highest reading since 2012. The data for November showed that core PCE inflation unexpectedly declined back down to the same annual rate seen for most of the year, which is an issue the Fed must now consider. If inflation continues to hold at this level, the Fed may consider slowing its pace of monetary policy tightening.

Since the election, the stock market has climbed. Indicators of consumer confidence have increased as well. This was reflected in Monday's reading from the Conference Board, which showed that confidence is at the highest level since 2001. In particular, consumers are more upbeat about the outlook for future economic conditions than they have been in over a decade. Confident consumers are a key component of a healthy housing market.

Looking ahead, the next major economic report will be the Institute of Supply Management (ISM) Manufacturing Index on January 3. The minutes from the December 14 Fed meeting will come out on January 4. The ISM national services index will be released on January 5. The next Employment Report will come out on January 6. Mortgage markets will close early on Friday and will be closed on Monday in observance of the New Year.

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Confident consumers indicate a healthy housing market