MARKET COMMENT
Mortgage bond prices finished the week sharply lower which caused rates to skyrocket. Rates were worse Monday morning as traders positioned themselves ahead of the employment data. Personal income rose 0.4% as expected. Spending rose 0.4% versus the 0.5% increase. PCE core inflation rose 0.2% as expected. Consumer confidence was 125.4 versus the expected 124 mark. Employment Cost Index rose 0.6% versus the expected 0.5% increase. ADP Payrolls rose 234K. Analysts looked for a 190K increase. Weekly jobless claims were 230K. Analysts looked for a reading of 240K. Payrolls rose 200K versus an expected increase of 180K. Unemployment was 4.1% as expected. Stronger jobs data throughout the week resulted in higher rates. We ended the week worse by over a full discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Trade Data | Tuesday, Feb. 6, 8:30 am, et | $51B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| 3-year Treasury Note Auction | Tuesday, Feb. 6, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Consumer Credit | Wednesday, Feb. 7, 3:00 pm, et | $28B | Low importance. A significantly large increase may lead to lower mortgage interest rates. |
| 10-year Treasury Note Auction | Wednesday, Feb. 7, 1:15 pm, et | None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, Feb. 8, 8:30 am, et | 230K | Important. An indication of employment. Higher claims may result in lower rates. |
| 30-year Treasury Bond Auction | Thursday, Feb. 8, 1:15 pm, et | None | Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates. |
FED STRUCTURE
The Federal Open Market Committee (FOMC) consists of twelve members–the seven members of the Board of Governors of the Federal Reserve System who are appointed by the President to staggered 14 year terms; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis. The rotating seats are filled from the following four groups of Banks, one Bank president from each group: Boston, Philadelphia, and Richmond; Cleveland and Chicago; Atlanta, St. Louis, and Dallas; and Minneapolis, Kansas City, and San Francisco. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in the discussions, and contribute to the Committee’s assessment of the economy and policy options.
The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
The Fed members are not required to serve all 14 years and some retire or resign early as we have seen lately. Jerome Powell is scheduled to take over as chair for Janet Yellen Monday when her term as chair expires. Her term as a governor doesn’t expire until 2024 and she could stay but indicated she will retire.
The makeup of the Fed is important because it is the most powerful financial institution in the world and is a huge factor in mortgage interest rates. New additions are expected this year but nominations go through the Senate and there is often significant debate.
