Rates Respond to Yellen Comments

Comments from Fed Chair Yellen on Tuesday were favorable for mortgage rates. A wide range of economic data released this week was roughly neutral. The net result was a small decrease in mortgage rates, the first weekly decline in February. Yellen's semi-annual testimony to Congress caused investors to push farther in the future when they expect the Fed to begin raising the fed funds rate. Now the consensus outlook is for the first rate hike to take place in September. Yellen explained that the Fed can remain "patient" in tightening monetary policy because inflation remains below the Fed's target level of 2.0%. Also, the labor market contains enough slack to allow room for further improvement without causing inflationary pressures.  The housing data for January released this week contained mixed news. Unusually bad winter weather played a role and likely will have an impact on next month's reports as well. Of note, both New Home Sales and Pending Home Sales are at or near multi-year highs, while Existing Home Sales fell 5% from December, to the slowest pace since April of last year.  Although all three reports cover activity in January, Existing Home Sales counts closings, while Pending and New Home Sales measure signed contracts (on existing and new homes). As a result, the latter two reports reflect more current activity, providing a reason to be optimistic about future closings. Next week, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, ISM Manufacturing and Core PCE will be released on Monday. The Core PCE price index is the Fed's preferred inflation indicator. The ADP Employment Change and ISM Services will come out on Wednesday.