Mortgage rates moved lower ahead of Wednesday’s Fed meeting, but they rose following the Fed announcement and ended the week a little higher. Demand for the $101 billion in this week’s Treasury auctions was average, and foreign investors purchased a healthy 29% to 33% of each auction. The stock market ended the week with little change. Nearly all of the movement in mortgage rates during the week was related to the Fed meeting.
In anticipation of the announcement of favorable new Fed actions, mortgage rates moved lower early in the week. Some investors were looking for the Fed to expand its purchases of Treasury securities, which would be positive for mortgage rates. Those investors were disappointed, however, as the Fed announced no new initiatives. The Fed made no change in rates, holding the fed funds rate close to zero. According to the Fed, the economic outlook has “improved modestly” since the March 18 meeting. A lack of new Fed programs and confirmation of improved economic prospects pushed mortgage rates higher.
Overshadowed by the Fed meeting, an important report on first quarter Gross Domestic Product (GDP) presented data which supports the Fed’s economic outlook. GDP fell -6.1%, which was significantly weaker than the consensus forecast. However, a breakdown of the GDP report reveals that the weak headline number for the first quarter may not be reflective of the current condition of the economy. GDP fell more than expected mainly due to declines in inventories and business investment. Consumer spending actually far exceeded expectations. If this trend continues, then businesses will have to begin to rebuild depleted inventories, lifting future economic activity.