Stronger than expected economic data, solid earnings reports, and upward revisions to the Fed’s growth forecast propelled the Dow stock index above the 10,000 level for the first time since October 2008. However, these same factors were unfavorable for Austin mortgage rates, and they ended the week modestly higher.
This week’s economic data mostly surprised to the upside. With the end of the Cash for Clunkers program, Retail Sales declined, but by less than expected. Excluding autos, Retail Sales rose on a monthly basis. Industrial Production showed a nice increase, and the Empire State regional manufacturing index jumped to the highest level since May 2004. Weekly Jobless Claims fell to the lowest level since early January, indicating some improvement in the labor market.
On Wednesday, the minutes from the September 23 Fed meeting were revealed. At that meeting, the Fed announced that there would be no change in the size of the $1.25 trillion mortgage-backed securities (MBS) purchase program, but that it would be extended from the end of the year to the end of the first quarter of 2010. The purpose of the longer time frame was to gradually wind down the program and minimize disruptions to MBS markets, which heavily influence mortgage rates. The Fed minutes released this week showed that the MBS purchase program was one of the primary areas of discussion at the Fed meeting. Some Fed officials argued in favor of expanding the size of the MBS purchase program to stimulate the housing market and the overall economy, but the majority decided against it. Based on the minutes, it appears very unlikely that the Fed will change its announced position and increase the scope of its MBS purchases, unless the economic outlook deteriorates significantly.
Housing data will be in the spotlight next week. Housing Starts will be released on Tuesday, and Existing Home Sales will come out on Friday. The Producer Price Index (PPI) inflation data will also be released on Tuesday. The Fed’s Beige Book is on the schedule for Wednesday. In addition, the Treasury will announce the size of upcoming Treasury auctions on Thursday.