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Economic News
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Kenton Becker
Loan Officer
Office: (206) 423-2552
NMLS #123961 ,
Washington #MLO-123961

Events Last Week:

Durable Orders Rose
Existing Sales Higher
New Home Sales Up
Jobless Claims Fell

Events This Week:

Tue 5/28
Confidence
2-yr Auction

Thur 5/30
GDP
Pending Sales
7-yr Auction

Fri 5/31
Core PCE
Income
Chicago PMI

 

 

 

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When Will the Fed Taper?

For months, investors have been focused on the question of when the Fed will begin to scale back its massive bond buying program. On Wednesday, comments from Fed Chief Bernanke and the Fed Minutes caused investors to think that the tapering may begin sooner than expected. The acknowledgment that Fed officials believe that economic growth actually could pick up quickly enough to justify a reduction in monetary stimulus was encouraging, but it was bad news for mortgage rates.

One of the primary goals of the Fed's bond buying program is to keep mortgage rates low to stimulate the housing market and boost the economy. To this end, the Fed currently purchases the vast majority of newly issued mortgage-backed securities (MBS) each month. Since mortgage rates are mostly determined by MBS prices, this enormous demand from the Fed has helped mortgage rates decline to historically low levels. The Fed's MBS purchases will eventually end, however, and last week's Fed comments raised investor concerns that this will take place sooner than previously expected. On Wednesday, Bernanke acknowledged that there is a chance that the Fed could begin to taper its MBS purchases at one of its "next few meetings", based on economic conditions. The detailed Fed Minutes from the May 1 Fed meeting revealed that a number of Fed officials were open to scaling back the Fed's MBS purchases as early as next month, if economic growth picks up enough.

In addition, the Minutes from the last Fed meeting revealed that there is wide disagreement among Fed officials about what would constitute sufficient economic strength to cause the Fed to cut back its MBS purchases. Neither Bernanke's testimony nor the Minutes indicated that economic growth is currently strong enough to satisfy most Fed officials, making it unlikely that tapering will begin in the next couple of months. Bernanke warned that a "premature" tightening of monetary policy would risk slowing the economic recovery. The result of this uncertainty has been a high level of volatility around data releases and Fed speeches, and the volatility is likely to continue until the Fed actually announces a change in policy.

Also Notable:
  • Existing Home Sales rose to the highest level since November 2009
  • Continued Jobless Claims fell to the lowest level since March 2008
  • Chinese manufacturing data was weaker than expected
  • The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities this week

graph

 
Average 30 yr fixed rate:
Last week: +0.10%
This week: +0.18%
Stocks (weekly):
Dow: 15,250 -50
NASDAQ: 3,450 -25
 

This Week

Revisions to first quarter GDP and Pending Home Sales will be released on Thursday. Core PCE inflation, Personal Income, and Chicago PMI Manufacturing will come out on Friday. Consumer Confidence and Consumer Sentiment will round out the Economic Calendar. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

©2013 MBSQuoteline

landhome
Equal Housing Opportunity Lender. Rates, Program, Fees, and Guidelines are subject to change without notice. Not a commitment to lend. Land Home only conducts business in states we are approved to. Land Home Financial Services, 22525 SE 64th Place, Suite 220, Issaquah, WA 98027. Washington Consumer Loan License #CL-89331. NMLS ID # 89331. Kenton Becker Licenses: NMLS #123961; Washington #MLO-123961. You are receiving this communication because of an existing and/or past business relationship, or because you have consented to receive communications from Land Home. 05-28-13  

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