Economic Commentary for February 13th: Little Change in Rates


Over the past week, investors focused on the January Employment Report and new Fed Chair Janet Yellen’s first testimony before Congress. Both events caused movement in mortgage rates, but the changes roughly offset each other, leaving mortgage rates with little change for the week.

For the second straight month, the Employment Report fell short of expectations. This was bad news for the economy, but favorable for mortgage rates. The reaction was limited, however, by questions about the impact of bad weather and by a slight reduction in the Unemployment Rate. Against a consensus forecast of 185K, the economy added just 113K jobs in January, and the weak reading in December was revised only slightly. The survey used to determine the Unemployment Rate revealed greater strength in January than the payrolls data. The Unemployment Rate declined from 6.7% to 6.6%, the lowest level since October 2008.

During Yellen’s testimony before Congress on Tuesday, she made it clear that she would continue the policies set in place by her predecessor, Ben Bernanke, including a plan to steadily reduce the Fed’s bond purchases. Investors were interested to hear if recent weak economic data and turmoil in emerging markets would cause the Fed to delay the tapering. Yellen made this sound unlikely. The bond purchase program has helped keep mortgage rates low in recent years, so mortgage rates increased a little when Yellen suggested that the expected pace of tapering would change only if the performance of the economy weakened significantly.

With much of the uncertainty about future Fed policy under Janet Yellen resolved, the economic growth data will be the focus for investors. The biggest upcoming report will be the Retail Sales data. Retail Sales account for about 70% of economic activity. The housing data also will be important over the next couple of weeks. In addition, if the negotiations to raise the debt ceiling do not proceed smoothly, it could cause a reaction in financial markets.