Market Comment
Mortgage bond prices finished the week higher which put downward pressure on rates. The first portion of the week started with higher rates followed by small positive movements Tuesday and Wednesday. Consumer prices rose 0.2% and the core value, which excludes the volatile food and energy components, also rose 0.2%. Traders expected CPI to rise 0.3% and 0.2% respectively. The Fed raised rates Wednesday as expected. Producer prices rose 0.5% and the core rose 0.3%. Economists expected PPI to rise 0.3% and the core to rise 0.2%. Weekly jobless claims were 218K. Analysts looked for a higher reading of 223K. We ended the week better by 1/8 to 1/4 of a discount point.
Fed Changes Outlook The Fed reported that “Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.”
The Fed raised their target federal funds rate to 1.75 to 2 percent. They guided future policy with the statement that “in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Analysts now believe there will be two additional rate increases before the end of the year. The key verbiage was an adjustment from “moderate” growth to “rising at a solid rate” regarding economic activity.
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