Forecast for the Week: US economic growth is front and center with 3rd Quarter GDP hitting the wires

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As you can see, what the Fed says about the economy and inflation can have a big impact on rates and the financial markets.

This coming week may be another exciting and potentially volatile one as the Fed will see one of the more important economic reports of the month – Friday’s first read on 2018 third quarter Gross Domestic Product (GDP). The second quarter saw a sharp 4.2% rise as the U.S. economy continues to strengthen with the labor market near full employment. Expectations are for a slightly slower growth rate, near 3.2% – but still quite strong.

GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health.

Housing data will also be reported as the sector cools a bit and inventories rise from anemic levels seen in the past few years.

Key Economic Reports This Week

• The economic calendar begins on Wednesday with New Home Sales, followed by Pending Home Sales on Thursday.
Durable Orders will be released on Thursday along with Weekly Initial Jobless Claims.
• The big report this week will be Friday’s first reading of third quarter Gross Domestic Product.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Oct 19, 2018)

Last Week in Review: Rates hit seven-year highs midweek on the heels of a confusing Fed message

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Our Federal Reserve has a dual mandate – to maintain price stability (inflation) and maximum employment. They also have a 3rd “unstated” mandate, which is to maintain market calm.

This past week, the Fed came up a bit short on that “unstated” mandate and created quite a bit of confusion and market turmoil midweek upon releasing the Minutes from the Sept 26th Fed meeting.

In that meeting we learned there is a group of “hawkish” Fed Members that want to hike the Fed Funds Rate more aggressively into 2019. At the same time, there were other Fed members who think the current Fed Funds Rates is “about right” – meaning no more hikes for now. The Fed talking out of both sides of their mouth was a source of confusion for the markets and home loan rates.

Adding to the confusion is the Fed’s very own inflation forecast which suggests inflation will remain close to current levels through 2021. If we recall the Fed mandate to maintain price stability, one could argue there is no need to raise the Fed Funds Rate if inflation is not rising.

Food for thought – If the Fed’s modest inflation forecast comes to pass, we will likely see home loan rates remain near historically attractive levels.

If you or someone you know has questions about home loans, give us a call. We’d be happy to help.

Simple Steps to Stay Healthy During Cold and Flu Season

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With cold and flu season just around the corner you might think there isn’t much you can do to prepare for the inevitable aches and achoos. A few small changes in your routine and at home can go a long way toward keeping you and your family healthy all season long.

Tidy toilet bowls

The toilet can be a breeding ground for bacteria, but instead of slipping on the rubber gloves and scrubbing with a grimy brush, consider ContinuousClean from Kohler. This factory-installed system housed in the toilet tank dispenses a consistent dose of cleaner during each flush. Simply place your preferred cleaning tablet in a compartment, choose a cleaning setting and let the system go to work. You don’t have to lift a finger.

Launder towels and linens

Washing linens regularly helps eliminate germs and viruses while cleaning off dirt and grime. This is especially important when someone in the house is sick because it prevents the spread to others. For frequently used and potentially shared items like bed sheets and bath towels, be sure to wash in hot water or use the sanitize setting. Follow this by drying using the high-heat setting in order to kill any microorganisms.

Disinfect household hotspots

Doorknobs, cabinet handles and light switches are frequently touched by everyone who lives in your home. That means any dirt, bacteria or germs on their hands will get transferred to those surfaces and onto the hands of the next person who touches them. To prevent this spreading and keep family members healthy, wipe down common surfaces with a disinfectant wipe. It takes just seconds to do but can make a big difference.

Clean hands

Regularly washing hands is one of the best ways to eliminate germs and prevent illness. All family members should scrub up every time they use the bathroom to keep fingers fresh and surfaces clean. For easy hand-washing, use the Kohler Touchless Foaming Soap Dispenser. Simply hold your hand under the spout to dispense soap automatically. A 20-second lighted timer lets you know how long to lather, which is not only the recommended hand-washing time from the Centers for Disease Control and Prevention, but also a helpful guide for kids.

Self-care

Getting proper rest and nutrition is essential to maintaining a healthy immune system that fights off the germs and viruses that increase during cold and flu season. To prioritize these two essential steps, consider meal planning and creating a regular bedtime routine. By meal planning weekly you stock your fridge with healthy home-cooked foods. At night, create a routine with relaxing activities like bathing, reading or meditating. Set a daily alarm if necessary on your phone to remind you when it’s time to start your bedtime routine so you don’t put it off.

These four simple steps will help keep your home clean and your family healthy. That way you can enjoy the best of the season, without the runny noses and raspy voices.

Forecast for the Week: Corporate Earnings and Guidance are front and center

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The upcoming week will bring some key economic data that includes the closely watched Retail Sales Report for September. The markets will be watching this report to gauge the health of consumer spending as we head into the all-important holiday shopping season. Consumer spending makes up 70% of Gross Domestic Product (GDP) – so it is important to follow.

Corporate earnings season officially kicks off this week as the markets will be informed if the recent tariffs have impacted earnings. The forecast for earnings growth for S&P 500 companies will increase 21% in the third quarter of 2018, following 24% and 26% growth in the first and second quarters.

We had an early taste on Friday when J.P. Morgan Chase Bank and Wells Fargo both posted good earnings.

In addition to the earnings, the statements from corporations regarding the outlook for the future will be closely watched. If earnings and forward guidance are solid, it could push Bond prices lower, rates higher, while giving a boost to Stocks. Again, the opposite is also true.

One thing is for sure – volatility is back and something to consider in the weeks ahead.

Key Economic Reports This Week

• The Retail Sales report will be delivered on Monday.
• The NAHB Housing Market Index will be reported on Tuesday, with Housing Starts and Building Permits on Wednesday and Existing Home Sales on Thursday.
• Manufacturing data will be seen from Monday’s Empire Manufacturing Index followed by the Philadelphia Fed Index on Thursday.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday Oct 12, 2018)

Last Week in Review: Rates were higher early in the week – but improved on the heels of a soft Consumer Inflation reading and rout in Stocks

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When following the direction of interest rates, one only has to follow the direction of inflation. If inflation is moving higher, rates are going higher. The opposite is also true.

Lately, there has been a growing fear that inflation is threatening to rise due to our tight labor market, strong economy and rising wages. It was this fear that pushed rates higher over the past month, culminating with rates hitting their highest level in over 7 years this past Tuesday.

But come Thursday – the bond market had reason to breathe a sigh of relief and rejoice when the September Consumer Price Index (CPI) was reported lower than expectations. Remember – low inflation is good for the bond market and home loan rates.

It was just last month that Fed Chairman Jerome Powell and the Fed forecasted consumer inflation to remain near current levels through 2021. If this comes to pass, long-term rates like home loan rates can’t rise too much.

Also helping rates improve from the worst levels of the week was a 1,400+ point selloff in Stocks between Wednesday and Thursday. Generally speaking, when investors sell Stocks they park some of those investment dollars into Bonds.

Bottom line – home loan rates, while elevated since earlier this year, remain historically low…especially when you consider how well our economy is performing.

If you or someone you know has questions about home loans, give us a call. We’d be happy to help.