Mortgage Rates Retreat from Four-Month Highs on Fiscal and Monetary Policy News

The prime 30-year fixed mortgage rate quoted on Zillow touched its highest level since mid-July last Wednesday – averaging 3.87 percent compared to 3.88 percent on July 10th – and held close to those levels through the weekend. A strong Q3 GDP report on Friday only reinforced this trend with data increasingly pointing to a healthy U.S. economy.

Fiscal and monetary policy news early this week, however, pushed rates down by about 10 basis points, roughly to the range where they have been for much of October.

On the fiscal policy front, the emerging contours of the Congressional tax reform package point to slightly smaller deficits than were previously expected. Early reports on the proposals suggested more deficit-financed tax cuts, while more recent reports indicate a compromise to phase in some tax cuts gradually.

On the monetary policy front, speculation continues as to who the President will nominate as the next Chair of the Federal Reserve Board. The most recent news reports point to candidates with experience on the Federal Open Market Committee and a longer track record of monetary policy decisions, which would likely keep interest rates on their current path.

Beyond Fed news, markets are likely to keep an eye on Friday’s October Jobs Report. A strong jobs report would provide yet another data point on the underlying health of the American economy, although the payroll numbers will likely continue to be influenced by recovery from the two hurricanes that hit the Southeast in late August and early September.