UNCERTAINTY TAKES ITS TOLL… There are just two weeks to go for politicians to broker a deal to stop the country from going over a fiscal cliff of draconian tax hikes and spending cuts. Unfortunately, Washington isn’t proceeding with much urgency.Investors reacted poorly to the uncertainty as all three major stock indexes slipped for the week. Not helping things, the economic data was mixed, as inflation cooled and Industrial Production beat expectations, but Retail Sales missed consensus targets.
The big news came out of the Fed meeting on Wednesday. The Fed Funds Rate wasn’t touched, but the FOMC Committee announced it would now keep the Rate at these super low levels as long as unemployment stays above 6.5%. Most economists think that will be a very long time. To support this policy, once the current “Operation Twist” bond buying program ends, the Fed will start purchasing $45 billion worth of Treasuries each month, indefinitely.
For the week, the Dow ended down 0.2%, to 13135; the S&P 500 was down 0.3%, to1414; and the Nasdaq was down 0.2%, to 2971.
In spite of this week’s Fed announcement, there was a bit of a sell-off in long term bonds. The FNMA 3.5% bond we watch ended the week down .08, at $106.15.Nonetheless, the Fed did signal that the measures they’re taking to keep interest rates low will remain in place for a good long while. So national average mortgage rates stayed at or near record lows. The Mortgage Bankers Association reported demand for purchase loans gained for the fifth week in a row, up 9%over a year ago.
DID YOU KNOW?… Fiscal policy refers to decisions by the President and Congress about taxation and government spending. Economists explain that when taxes increase, more money goes to the government, so consumers have less to spend on goods and services to grow the economy and create jobs.
>> This Week’s Forecast
HOME BUILDING, EXISTING HOME SALES, MANUFACTURING, GDP, INFLATION…November Housing Starts are forecast down a little, although Building Permits are expected up for the month. Existing Home Sales should be up in November, inching ever closer to the 5 million mark. Manufacturing should look better, with the NY Empire and Philadelphia Fed Indexes both back in positive growth territory.
Thursday, the Third Estimate of Q3 GDP is predicted to remain at 2.7%, putting our economic growth just below where it needs to be. Friday’s Personal Income and Spending are both expected up for November, with Core PCE Prices showing inflation still under control.
Source, Guild Mortgage Company