About: Kiplinger’s Economic Outlooks

Gross Domestic Product

Gross domestic product is the broadest indicator of the economy, measuring the value of final goods and services produced in the U.S. in a given time period. It is perhaps the most closely watched indicator as well, serving as a guidepost for Federal Reserve interest rate policy and for budgeting in both government and private industry.

At Kiplinger, we examine what trends are driving GDP up (or down) and forecast its future direction quarter by quarter. Read our current forecast »

Employment

If gross domestic product is the broadest indicator of the economy, employment is the one most personally felt. These are people’s jobs we’re talking about.

Two distinct metrics make up the employment forecast. The more important one is the “payroll report,” a summation by the Department of Labor of how many jobs the economy has created (or lost) each month. This data is broken out by sector, such as manufacturing, mining and health care. Note that simply to keep up with population growth, the economy needs to add more than 100,000 jobs every month; otherwise the unemployment rate will rise.

That rate is the other closely watched figure. It’s a simple division of the number of people who have looked for work in the prior four weeks but who do not have a job by how many people are currently in the labor force. That simplicity belies some underlying concerns about the unemployment rate. One key one: Potential workers who aren’t actively looking for work aren’t included in the calculation. Read our current forecast »

Interest Rates

Interest rates are of tremendous interest to borrowers (for whom they are a cost) and lenders (a category that includes individuals trying to get some return on their bank savings). Almost everyone is in one or both categories.

The level of short-term rates, such as those used by banks when loaning each other money overnight, is set by the Federal Reserve through its Open Market Committee, usually at regularly scheduled meetings.

Market interest rates, including those in money markets and offered on consumer products such as certificates of deposit, follow the Fed’s lead but are also subject to other influences — for example, risk, transaction costs and expectations of inflation. Generally, the longer the period of the loan, such as with 10-year Treasury Bonds or mortgages, the more important market factors become compared with the Federal Reserve’s actions. We forecast both what we expect the Federal Reserve to do in the near term and to what extent that will affect the direction of long-term interest rates. Read our current forecast »

Inflation Rate

Inflation is the generally rising price of goods and services, or why things cost more. It’s measured by the Department of Labor using a sample, dubbed a “market basket,” of what people in urban areas in the U.S. actually buy each month. Then each month, data collectors check on the prices of those items. From that research we get the Consumer Price Index (CPI).

A component of that index, the core inflation rate, which excludes the more volatile prices of food and energy, is also closely watched. At Kiplinger, we forecast changes in both.

Economists generally believe that moderate inflation of about 2% is best for an economy. Prices that are rising too quickly cause consumers heartburn, of course, but prices that are flat or falling are a problem, too. This condition, known as deflation, makes debts more expensive to pay back and can lead to declining business investment. Read our current forecast »

Business Equipment Spending

How much businesses are laying out in investment is critical to other businesses in guiding their own spending. In making our forecasts for the direction of business spending in the quarters and years ahead, we follow two indexes from the Census Bureau: Durable Goods Shipments and Orders and Business Inventories reports. Read our current forecast »

Energy

Like it or not, petroleum and natural gas remain incredibly important to the U.S. economy. Knowing where oil prices are headed is critical to businesses of all stripes, from airlines to plumbing companies. Consumers planning their family budgets and vacations care, too. Not only do we monitor Department of Energy reports, but we also talk to commodities traders and petroleum engineers to forecast price trends, changes in production technologies and consumer habits. Read our current forecast »

Housing

In addition to being the roof over our heads, housing is an important sector in the economy. Three statistics form the core of our coverage: sales of existing homes (and the prices those sales fetch); sales of new homes; and housing starts, which reflect new construction that is counted in GDP.

Because housing is a diversified and highly regional industry, our reporting and forecasting are informed by other research as well as conversations with industry experts as well. Read our current forecast »

Retail

Consumers are the engine of our economy, and when their spending flags, business feels it. We examine trends that are influencing their habits, such as falling gas prices, to forecast what they’ll be buying in the future and how much they’ll be willing to shell out both on everyday items and on big-ticket purchases such as cars and trucks. Read our current forecast »

Trade

All nations of consequence trade with others. Those that buy more from other countries than they sell in turn have a trade deficit, and that’s been the story for the United States since the mid-1970s.

How big that deficit will be, and whether the changes will result from more (or fewer) imports or more (or fewer) exports, is the crux of our forecasting. We look at specific sectors (such as agriculture) where the United States is doing well selling abroad, as well as what items (such as smartphones) we buy from overseas. We also discuss the strength of the dollar versus foreign currencies and how that affects trade trends. Read our current forecast »

Source: kiplinger.com

Mortgage and refinance rates today, Jan. 30, and rate forecast for next week

Today’s mortgage and refinance rates 

Average mortgage rates rose yesterday. And the week — which had promisingly seen a new all-time low — ended up going nowhere. Because those averages were the same yesterday evening as they had been seven days earlier.

Right now, I’m not expecting mortgage rates to move sharply. It’s not impossible, but I can’t spot any obvious reasons why they should. So you probably won’t lose or gain much whether you float your rate or lock it

Personally, I don’t see the point of wagering when the rewards of winning are likely to be so low. And I’d lock my rate when I was 30 days from closing. But you might perfectly rationally take the opposite position.

Find and lock a low rate (Jan 30th, 2021)

Program Mortgage Rate APR* Change
Conventional 30 year fixed 2.745% 2.745% +0.06%
Conventional 15 year fixed 2.313% 2.313% +0.01%
Conventional 5 year ARM 3% 2.743% Unchanged
30 year fixed FHA 2.495% 3.473% +0.07%
15 year fixed FHA 2.438% 3.38% Unchanged
5 year ARM FHA 2.5% 3.22% Unchanged
30 year fixed VA 2.3% 2.472% +0.11%
15 year fixed VA 2.188% 2.508% +0.13%
5 year ARM VA 2.5% 2.399% Unchanged
Rates are provided by our partner network, and may not reflect the market. Your rate might be different. Click here for a personalized rate quote. See our rate assumptions here.

Find and lock a low rate (Jan 30th, 2021)


COVID-19 mortgage updates: Mortgage lenders are changing rates and rules due to COVID-19. To see the latest on how coronavirus could impact your home loan, click here.

Should you lock a mortgage rate today?

In previous months, mortgage rates have shown a clear downward trend. But, looking back over January, rises and falls have been very close to equal, both in frequency and the size of movements.

Indeed, those averages are ending the month almost exactly where they started it. And the range within which they’ve moved has also been tight.

Assuming that situation continues through next week (and I see no reason to think it won’t), you probably stand to gain or lose little by either locking or continuing to float.

So my recommendation to lock if you’re closing within 30 days of closing is based on an abundance of caution. Why take even the small chance of something big suddenly emerging that messes things up when the rewards of floating are likely to be so limited?

  • LOCK if closing in 7 days
  • LOCK if closing in 15 days
  • LOCK if closing in 30 days
  • FLOAT if closing in 45 days
  • FLOAT if closing in 60 days

However, with so much uncertainty at the moment, your instincts could easily turn out to be as good as mine — or better. So be guided by your gut and your personal tolerance for risk.

Compare top lenders

What’s moving current mortgage rates

There were moments over the last week when I worried I’d misread the situation. Might investors have decided to ignore the prospect of higher government borrowing, allowing mortgage rates to resume their long march lower in line with the worsening economy?

But no. Rises on Thursday and Friday suggested that those investors continue to have the concerns that have dragged those rates higher periodically during January.

More volatility?

However, those concerns are fairly evenly balanced by others over the serious harm that the pandemic is continuing to wreak on the economy. Those are trying to pull mortgage rates lower as the prospect of higher government borrowing tries to push them higher.

Across January, those competing forces were fairly evenly matched. And I’m expecting them to remain so this week. But be aware that they are likely to gain and lose prominence in investors’ minds as news items put each front and center at different times. And that could lead to more volatility.

A break with Treasury bonds

It’s worth mentioning a phenomenon that’s been around for a while. Traditionally, mortgage rates shadow yields on 10-year Treasury bonds. It’s never been a perfect relationship, but it’s been a fairly reliable constant for a very long time.

Until it wasn’t. Toward the end of 2020, we saw an unusual break that some see as dangerous. There’s always a difference (“spread”) between the two because Treasury securities are considerably safer investments than mortgage-backed securities. But that spread’s grown unusually wide in recent months.

And, were it to snap back, there could be a chance of noticeably higher rates with very little warning. Of course, that may not happen. Or, at least, not soon or quickly. But it’s another reason to err on the side of caution when deciding whether to float or lock your rate.

Economic reports next week

Next Friday sees publication of the December employment situation report, which many currently regard as the most important of all economic reports. Markets and mortgage rates may well move if its data are better or worse than expected.

The other reports next week will probably have to be shockingly good or bad to move those rates far.

Here are next week’s main economic reports:

  • Monday — December construction spending
  • Tuesday — January reading of the Institute for Supply Management (ISM) manufacturing index
  • Wednesday — January reading of the ISM services index
  • Thursday — Weekly new claims for unemployment insurance.
  • Friday — December employment situation report, including nonfarm payrolls and the unemployment rate

Friday’s the big day next week.

Find and lock a low rate (Jan 30th, 2021)

Mortgage interest rates forecast for next week

Last week, we said we were keeping our fingers crossed for a new all-time low. And that turned out well. But only briefly.

Next week may see another. However, further rises are roughly equally likely.

Mortgage and refinance rates usually move in tandem. But note that refinance rates are currently a little higher than those for purchase mortgages. That gap’s likely to remain constant as they change.

How your mortgage interest rate is determined

Mortgage and refinance rates are generally determined by prices in a secondary market (similar to the stock or bond markets) where mortgage-backed securities are traded.

And that’s highly dependent on the economy. So mortgage rates tend to be high when things are going well and low when the economy’s in trouble.

Your part

But you play a big part in determining your own mortgage rate in five ways. You can affect it significantly by:

  1. Shopping around for your best mortgage rate — They vary widely from lender to lender
  2. Boosting your credit score — Even a small bump can make a big difference to your rate and payments
  3. Saving the biggest down payment you can — Lenders like you to have real skin in this game
  4. Keeping your other borrowing modest — The lower your other monthly commitments, the bigger the mortgage you can afford
  5. Choosing your mortgage carefully — Are you better off with a conventional, FHA, VA, USDA, jumbo or another loan?

Time spent getting these ducks in a row can see you winning lower rates.

Remember, it’s not just a mortgage rate

Be sure to count all your forthcoming homeownership costs when you’re working out how big a mortgage you can afford. So focus on your “PITI” That’s your Principal (pays down the amount you borrowed), Interest (the price of borrowing), (property) Taxes, and (homeowners) Insurance. Our mortgage calculator can help with these.

Depending on your type of mortgage and the size of your down payment, you may have to pay mortgage insurance, too. And that can easily run into three figures every month.

But there are other potential costs. So you’ll have to pay homeowners association dues if you choose to live somewhere with an HOA. And, wherever you live, you should expect repairs and maintenance costs. There’s no landlord to call when things go wrong!

Finally, you’ll find it hard to forget closing costs. You can see those reflected in the annual percentage rate (APR) you’ll be quoted. Because that effectively spreads them out over your loan’s term, making that higher than your straight mortgage rate.

But you may be able to get help with those closing costs and your down payment, especially if you’re a first-time buyer. Read:

Down payment assistance programs in every state for 2020

Compare top lenders

Mortgage rate methodology

The Mortgage Reports receives rates based on selected criteria from multiple lending partners each day. We arrive at an average rate and APR for each loan type to display in our chart. Because we average an array of rates, it gives you a better idea of what you might find in the marketplace. Furthermore, we average rates for the same loan types. For example, FHA fixed with FHA fixed. The end result is a good snapshot of daily rates and how they change over time.

Source: themortgagereports.com

What Is Quantitative Tightening?

What Is Quantitative Tightening? | SmartAsset.com

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In the past two years, investors have taken an unusual interest in the Federal Reserve Bank. That’s mostly due to a Fed policy known as ‘quantitative tightening’, or QT. Effectively, QT was the Fed’s attempt to reduce its holdings after it bought huge amounts of debt during the 2008 Great Recession. While some details will interest only economists, QT  may have implications for financial markets and regular investors. It’s useful to explore the backstory, but a financial advisor can be helpful if you’re concerned about how Fed activity can impact your investments,.

What is Quantitative Tightening?

To understand quantitative tightening, it’s helpful to define another term, which is quantitative easing. To do that, we need to go back to the bad days of 2008.

When the Great Recession hit, the Fed slashed interest rates to stimulate the economy. But it was evident that wasn’t nearly enough to stave off crisis. So the Fed provided another jolt of stimulus by buying Treasury bonds, mortgage-backed securities and other assets in huge volume. This combination of slashing interests rates massive government spending was qualitative easing, or QE, and fortunately it worked. Banks had more cash and could continue to lend, and more lending led to more spending. Slowly, the economy recovered.

But in the meantime, QE exploded the Fed’s balance sheet, which is a tally of the bank’s liabilities and assets. Prior to the crisis, the balance sheet totaled about $925 billion. With all the purchased debt, which the Fed categorized as assets, the balance sheet ballooned to $4.5 trillion by 2017. Years past the financial crisis and with a strong economy, the Fed decided to shrink its balance sheet by shedding some of its accumulated assets, effectively reversing QE.

That reversal is quantitative tightening. QE had poured money into the economy, and through quantitative tightening, the Fed planned to take some of that money out again. First it raised interest rates, which it had plummeted to zero during the financial crisis. Then, it began retiring some of the debt it held by paying off maturing bonds. Instead of  replacing these bonds with new debt purchases, the Fed stood pat and let its stockpile shrink. This effectively reduced the quantity of money under bank control, thus quantitative tightening.

Did Qualitative Tightening Officially End?

There was no official beginning or end to quantitative tightening. The Fed began to ‘normalize’ its balance sheet by raising interest rates in December 2015, the first hike in nearly a decade. In October 2017, it began to reduce its hoard of bonds by as much as $50 billion per month. But after four 2018 interest rate cuts and some stock market downturns, many observers worried the Fed aggressive normalization was too much of a shock to the economy.

In response, the Fed ended the interest rate hikes and slowed down on debt retirement. By March 2019, the cap on reductions reduced from $30 billion a month to $15 billion. By October 2019, the Fed announced it would once again start expanding its balance sheet by buying up to $60 billion in Treasury bills a month.

However, the Fed insisted this was not another round of quantitative easing. Some market observers reacted to that announcement with skepticism. But whether this was or wasn’t a new round of QE, the Fed’s action effectively stopped quantitative tightening.

How Quantitative Tightening Impacts Markets

Many investors worry that quantitative tightening would negatively impact markets. During the past decade, returns have shown a relatively high correlation with the Fed’s purchases. Conversely, the Fed’s selloff of assets was a contributing factor to the market dip in late 2018, which left the S&P 500 about 20% below its top price.

Quantitative tightening definitely made some investors nervous. That said, there are a few things to consider if the Fed shrinks the balance sheet in the future. First, it’s unlikely the balance sheet will contract to its pre-2008 level. The Fed hasn’t indicated where a ‘happy medium’ might be, but the balance sheet remained well about the pre-2008 figures when expansion began again in October 2019.

Additionally, it’s unlikely that quantitative tightening will reverse quantitative easing’s impact on long-term interest rates. In part, the Fed purchased long-term bonds and mortgage-backed securities to move money into other areas, like corporate bonds, and lower borrowing costs. Also, the Fed hoped this activity would encourage the productive use of capital. According to the Fed’s research, the use of quantitative easing reduced yields on 10-year treasury bonds by 50, to 100 basis points (bps).

While quantitative tightening may have reversed some of this impact, experts believe it will not undo long-term interest rates by 100 bps. Ultimately, it comes down to the comparative impact of the expansion and contraction of the balance sheet. In October 2019, the contraction was not nearly sufficient to reverse the expansion.

Other Considerations of Quantitative Tightening

Many investors worry that quantitative tightening will have a big impact on inflation and liquidity. This is because changes in inflation and liquidity may occur when there is a discrepancy concerning supply and demand. During the financial crisis, the Fed increased the money supply since the economic system desperately needed liquidity. A decade and strong recovery later, there’s less liquidly preference. In response, the Fed has decreased  cash reserves. In a strong market, this should have no real impact on liquidity and inflation.

The Takeaway

Quantitative tightening is a monetary policy that increased interest rates and reduced the money supply in circulation by retiring some of the Fed’s debt holdings. After qualitative easing expanded the money supply for several years to bring the economy back on track, the Fed used qualitative tightening as a means to normalize its balance sheet.

While quantitative tightening did not completely reverse quantitative easing, it did shrink the Fed’s balance sheet. This strategy left many investors uneasy about future returns and interest rates. That said, balance sheet normalization did not prove to be as disruptive as many investors feared.

Tips for Investors

  • The Fed’s monetary policy quickly becomes complex, but it’s still useful for investors to keep an eye on the bank’s actions. Since interest rate changes can have direct impact on major purchases and investment plans, understanding the Fed’s reasoning for these decisions can be helpful.
  • Financial advisors can help their clients cut through the noise and translate technical analysis of market observers into plain language. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/drnadig, ©iStock.com/claffra, ©iStock.com/Duncan_Andison

Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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