The biggest influence on mortgage rates over the past week was Wednesday’s Fed statement. Its dovish tone was well received, and mortgage rates ended the week a little lower.
As expected, the Fed did not change the federal funds rate. The statement provided valuable information with guidance that reduced the expected number of rate hikes in 2016 from four to two. To explain this, the Fed pointed to a downgraded outlook for U.S. economic growth and inflation, as well as concerns over the pace of global economic growth. The statement was good news for mortgage rates, as this guidance pushes tighter monetary policy further into the future. Fed officials do not plan to begin to reduce the Fed’s large holdings of mortgage-backed securities (MBS) and Treasuries until after the final federal funds rate hike in the cycle is completed. The added demand for MBS from the Fed helps keep mortgage rates low.
The data released on Wednesday showed that core inflation, which excludes food and energy, continued to trend higher in February. The core consumer price index (CPI), the most widely followed inflation measure, unexpectedly rose to an annual rate of 2.3%, the highest level since May 2012.
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The recent housing sector data was encouraging. A surge in construction of single-family homes propelled a 5% increase in overall housing starts in February. Single-family housing starts, which make up roughly two-thirds of the market, were 37% higher than a year ago, and at the highest level since 2007.
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