In just a little more than a week the next monetary policy cycle will be getting underway. For investors and others, it's an exciting time. It has been a long "off-season" for changes in the short-term interest rates that the Fed controls, as the last change -- an upward one -- happened well over a year ago now and field conditions have changed appreciably since that time.
While the direction for policy is clear -- that is to say, the Fed's next move will be a cut in rates -- what's not clear now is whether the first move by the Fed will be a quarter- or half-point cut. The Fed is of course carefully tracking inbound data, and investors have also been paying close attention as they try to discern a likely move by the central bank. Of course, this is a challenge, as during his press conference after the July Fed meeting, Chair Powell said that the FOMC "will be data dependent but not data point dependent, so it will not be a question of responding specifically to one or two data releases. The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market."
Requests for mortgage credit have generally improved in recent weeks as mortgage rates retreated. In the week ending August 30, a 1.6% increase in applications for mortgages was tallied by the Mortgage Bankers Association of America. While there's a finite pool of folks who can refinance at present interest rate levels, folks looking to purchase have been waiting to grab even a slightly lower rate. For the week, applications for funds to purchase homes were up 3.3%, and have been on the positive side of the ledger in five of the last six weeks. Conversely, requests for loans to refinance existing mortgages eased by 0.3% in the latest survey week and have now declined for three weeks in a row after an early-August jump.
Mortgage rates managed to hold steady last week, but the influential yield on the 10-year Treasury has been declining since Tuesday, shedding about 20 basis points by the close of business Friday. That should be enough to help mortgage rates decline by at least a handful of basis points this week, and we think that we'll see an 6-8 basis point decline in the average offered rate for a conforming 30-year fixed-rate mortgage as reported by Freddie Mac when Thursday rolls around.
