From Stuart Crawford at V.I.P. Mortgage:
"Increased concerns that the Fed will raise the fed funds rate more quickly than previously expected was the driving factor for mortgage rates last week. Stronger than expected economic data was another negative factor, and mortgage rates ended the week slightly higher.
A report from the San Francisco Fed released caused investors to question their outlook for future Fed policy. The report called attention to a discrepancy between investor expectations for the pace of fed funds rate hikes and the forecasts from Fed officials themselves. In short, the report points out that Fed officials are less dovish than investors think. There is growing concern that this week's Fed announcement will open the door to a fed funds rate hike sooner than previously expected. Highly accommodative monetary policy has helped keep mortgage rates low in recent years, so the prospect of tighter policy was unfavorable news for rates last week.
Retail sales account for roughly 70% of economic activity, making them an important indicator of the strength of the economy. Last month, the Retail Sales report for July fell short of expectations with a disappointing flat reading from June. The Retail Sales report released revealed a solid increase of 0.6% in August from July, matching the consensus forecast. The surprise came from a significant upward revision to the flat reading in July. Instead of stalling in July, Retail Sales actually continued to improve at a moderate pace. Unfortunately, stronger economic growth is negative for mortgage rates, as it increases future inflationary pressures.
The BIG STORY this week will be Wednesday's Fed meeting. Investors will be looking for a change in language which will make the timing of the first fed funds rate hike more dependent on the performance of the economy and less on guidance toward a specific date. This week’s economic data will include important inflation and housing data as well. In addition, investors will be keeping an eye on the conflict in Ukraine and the independence vote in Scotland (remember, many of these geopolitical events are helping keep an “artificial lid” on interest rates)."
Stuart can be reached at 480.776.2954