Economic News Comes in All Styles
Clients often ask us, “What moves interest rates?” The condition and direction of the U.S. economy is a major driver of interest rates and bond prices, and along those lines an unexpected news tends to move markets quickly. Bond markets, which is the same way as saying interest rates, follow economic indicators closely, looking for signs of change that might affect future supply and demand.When economic indicators exceed or fall short of market expectations, bond prices can move quickly and sharply in response
Monetary policy makers at the Federal Reserve also closely follow and interpret economic data releases, looking at the indicators relative to expectations as an indication of the outlook and direction of the economy and inflation, which can affect Federal Reserve policy. Although the Federal Reserve does not set long term rates, like mortgage rates, its policy has a significant impact directly on short-term interest rates and indirectly on longer term interest rates.
For Nations’ borrowers watching economic trends, jobs and housing are very important. The nation’s unemployment data, which is released on the first Friday of every month, is eagerly awaited, as are the various housing metrics that are released throughout the month.
Leading indicators, which have historically predicted the future direction of the economy, are more important than lagging indicators of economic turns that have already occurred. Retail sales figures are considered relevant, for example, because consumption spending represents two-thirds of total U.S. economic activity.
Indicators that reflect the most current data, such as the Institute for Supply Management (ISM) Survey released on the first day of the month and reflecting the month just past, could have a greater impact than the final quarterly report on economic growth (change in Gross Domestic Product, or GDP) which is released three months after the end of the quarter it reflects.
Nations Lending originators, and our clients, want reliable data. Some figures, such as new, single-family home sales, are subject to large subsequent revisions or too changeable for valid comparisons. Other indicators also show wide swings from report to report, compelling analysts to “smooth” the data using moving averages to discern trends.
The Federal Reserve looks at a number of indicators, including relative interest rate levels, commodity prices, inflation and economic growth along with the money supply. And for now, it seems, rates are exactly where they should be.