The Federal Reserve statement yesterday announced the end of Quantitative Easing as planned. However, the tone was far more ‘inflation cautious’ (also known as ‘Hawkish’) than the market expected. This change in tone signifies a expected increase in short term interest rates at some point in 2015. The date of increase has been widely speculated and continues to change as news is released. There are many who now believe that the Fed will maintain status quo throughout 2015. However, recent data does suggest another surge in economic expansion as well as upward price and wage inflation.
A mid quarter report of GDP was released this morning showing a projected growth rate of 3.5%. This is hotter than the 3% rate expected and again shows that economic expansion continues to grow. However, this number was weaker than the 4.6% final reading from Q2 of 2014. Although a drop from the prior quarter, overall it is still a healthy report.
Weekly Unemployment Claims for the week ending 10/25/2014 were reported at 287,000. This was slightly higher than expectations, and represents a 3,000 increase from last week’s upwardly revised 284,000. We seem to have stabilized at numbers below 300,000. Although this was higher than the readings we have received lately, this was still a respectable report and hints towards a monthly increase in jobs in excess of 200,000. We will receive the monthly job growth numbers from the Bureau of Labor Statistics next Friday. We will then be able to see if growth is continuing as strong as it has the past few months.
The stock market continues to shrug off any hint of bad news, and is now within a whisker of all-time highs once again. The upward movement we have seen recently in the stock market has been a headwind for mortgage rates, but has not been as damaging as one would expect. We are going to maintain our locking bias until we see more strength built up in the bond market.