Markets had largely assumed that an immediate rate hike was unlikely, but the revelation that most of the committee sees no hikes as necessary for the remainder of 2019 was viewed by many analysts as dovish and indicative of the Fed’s growing sensitivity to a slowing global economy.
Mortgage rates fell decisively this week as the fallout from last week’s Federal Reserve policy announcement and weak data from Europe inflamed uncertainty surrounding the strength of global economy.
Rates fell as expected after the Fed announced an end to its balance sheet reduction and a pause of benchmark rate increases for the foreseeable future. The cautious decision surprised markets and worsened many analysts’ concerns about the outlook for the global economy, boosting demand for treasuries and pushing mortgage rates downward.
Rates then fell further on Friday after markets interpreted weak German and French manufacturing data as additional evidence of this gloomier economic outlook. The result was an inversion of the so-called “yield curve”—an event that many analysts view as predictive of a coming recession.
These concerns will undoubtedly persist, and the focus now shifts to upcoming economic data releases, which should dictate whether more sharp movements are on the horizon. All eyes will be on Friday’s release of U.S. inflation data—a key indicator for Fed policy decision making and a central motive for their current “patient” approach.
