Economic Commentary, August 24, 2016

Waiting for Yellen Speech

There has been very little change in mortgage rates over the past week. Investors are waiting for a highly anticipated speech from Fed Chair Yellen on Friday. The economic data released over the past week had little impact.

Recent comments have indicated that Fed officials are divided about the appropriate timing for tighter monetary policy. Wednesday's Fed minutes from the July 24 meeting revealed differing views among officials on the outlook for the economy and inflation. Back-to-back speeches from different officials supported both ends of the spectrum from very hawkish to extremely dovish. Investors are seeking more clarity from the Yellen speech on the timing of Fed rate hikes.

The recent housing data was mixed. In July, sales of previously owned homes dropped modestly from the multi-year high seen in June, falling short of expectations. This was the first monthly decline since February. According to the National Association of Realtors, rising prices and a lack of inventory are holding back sales activity. By contrast, contracts signed for new homes jumped 12% in July to the highest level since October 2007, far exceeding the consensus forecast. It appears that builders are helping to fill the need for more inventory.

Looking ahead, Fed Chair Yellen will be speaking at Jackson Hole on Friday. Before that, the Durable Orders report will be released on Thursday. The second estimate of second quarter GDP, the broadest measure of economic activity, will come out on Friday. The core PCE price index, the inflation measure favored by the Fed, will be released on August 29. The Pending Home Sales report will come out on August 31.

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