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By G. Steven Bray
Mortgage rates continued their magical ride last week, and it looks like the ride may continue for a while. Fear of a weakening economy continues to fuel the ride.
We may get a little more insight into whether those fears are justified this week. First up is Fed Head Janet Yellen who testifies before Congress on Wed and Thurs. Markets are pricing-in less than a 50% chance of another Fed rate hike this year. That’s very different from the Fed’s own indications of steadily rising rates. While the Fed’s decisions don’t control mortgage rates, we assume they are based on the Fed’s opinion of the strength of the economy. If Yellen suggests the Fed will hit the pause button, that will speak volumes to markets.
The other interesting information this week is the retail sales report on Fri. Consumer spending, while not terribly strong during this recovery, has been strong enough to provide for mediocre growth. However, much of that spending has been for automobiles and health care. Higher auto sales have been driven by subprime auto lending, which hit a 10y high last fall. Obamacare has caused health outlays to surge. Markets are watching for more broad-based retail sales growth. The absence of it lends support to the narrative of a weakening economy.
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