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By G. Steven Bray
Mortgage rates remain in a very narrow range near the lows for the year. Part of the reason for that is the usual summer doldrums. Another reason is the mixed messages coming from politics and economic reports.
On the political front, the Trump agenda, the prospects for which caused the Trump Bump after the election, has yet to gain much traction in Washington. Congress returns from its summer recess soon to face an enormous plate of unfinished business. With Congressional Republicans bickering with other Republicans, the White House dissing Congress, and Democrats just saying no to everything, concern about a government shutdown has legs. I don’t think the market is really trading this yet, but I suspect it’s an anchor that will keep rates from rising much in the near term.
On the economic front, most recent reports show continued, stable growth. However, inflation, which is one of the Fed’s mandates, has fallen by about a third this year. The Fed’s target is 2%, and we’re well below that level now. While low inflation seems like positive, the risk is that inflation turns negative. Japan is the poster child for how deflation can sap a country’s economy.
The one potential market mover this week is the Fed’s annual Jackson Hole symposium. In the past, the event has provided some surprises when Fed governors were more candid with their thoughts about monetary policy. However, the Fed’s current plan seems pretty set: start reducing the balance sheet in Sep and one more rate hike in Dec – maybe. The European Central Bank head also will attend this year, but it was reported that he won’t answer any questions about the ECB’s future actions.
So, absent a truly unexpected headline, the market may just stay asleep. We have two weeks until Congress returns from recess.
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