Mortgage Rates Dip as AI Jitters Boost Bonds Ahead of Fed Decision, GDP Data

In A Nutshell: Rates have mellowed a bit coming into a big week with a Fed meeting and the first read of Q3 GDP data.

Last Week’s Highlights: Oil prices continued to increase last week, but rates came down, as doubts about the AI narrative battered stocks, sending money into the bond market. On the housing front, the increase in mortgage rates has sent builder confidence down to its lowest level in 14 years. Permits for single-family homes also fell to a multiyear low.

Upcoming Attractions: The biggest event of the week is the Fed decision and press conference Wednesday afternoon. The committee is not scheduled to update its forecast (the “dot plot”) this time. Markets believe the Fed will hold and then hike on December 9th for an every-other-meeting hike cadence, so the attention will be on clues for the next meeting rather than the outcome of this one. Fed Chair Kevin Warsh will hold a press conference but is likely to stick to his usual practice of not foreshadowing upcoming decisions. Fed watchers may get more color out of SF Fed President Daly and St. Louis Fed President Musalem’s remarks on Friday.

Apart from the Fed, there are also a couple of important data releases this week. The first look at Q3 GDP is coming on Thursday morning. Part of the thesis for rates increasing so much these last few months is a belief that the economy is growing faster. At one point, estimates had Q3 GDP growing as fast as a 5% annual rate. Forecasters are expecting this advance estimate to land around 3.2%, which would be a meaningful pick-up from 2.2% in Q2. And finally, the September durable goods report will be released on Tuesday with forecasters expecting a solid reading of 2.0% month-over-month growth. This report tracks new orders, shipments, and inventories of long-lasting manufactured products, which is a signal of how confident businesses and consumers are about the future.

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