Rate Increase for June Not Likely
While we don’t expect the Fed to increase rates at next week’s Federal Open Market Committee meeting (FOMC), the recent surge in strong economic data suggests that a rate hike in 2015 is very likely.
Last week the market saw some signs of life with better than expected construction spending and manufacturing data from the Institute for Supply Management. However, the positive tone was capped off by an upward revision to Q1 Gross Domestic Product and a stellar employment report. This week, US retail sales were stronger-than-expected with an increase in consumer auto purchases and other goods in May.
The recent strong economic data has put pressure on interest rates around the globe and the Greek debt situation is still weighing heavily on markets. This week we saw that situation take a turn for the worse as talks between Greece and its creditors failed to result in a solution. We will see next week exactly how the recent strong economic data and the problems in the Eurozone effect the FOMC meeting.
Despite the uncertainty surrounding interest rates, the US housing market appears to be as strong as the economic data we’ve been seeing lately. According to Corelogic, home prices in April were up 6.8 percent year-over-year and 14.4 percent month-over-month.
Economists expect Cash-Shiller, the leader in U.S. residential real estate trends, to end the year up for home prices by about 3.7 percent. Potential home buyers have taken note.
The Mortgage Bankers Association Purchase Index recently surged to 9.7 percent, its highest level since June 2013. Without question, strong wage growth and relatively low interest rates are having a positive impact on home purchases.
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