Mortgage rates improved throughout most of the week while trading volume returned in the first, full weekly-session of 2014. While rates worsened ahead of Wednesday’s release of the FOMC (Federal Open Markets Committee) December minutes, markets remained relatively stable for the remainder of the day, as the minutes were generally unsurprising. The minutes stated that while benefits from monthly bond purchase are diminishing alongside of an ongoing improvement in the labor market and expected increases in inflation, there are also risks from tapering too quickly, as Fed tapering may be measured in steps going forward. Rates then rallied after Friday morning’s release of Nonfarm Payrolls was much worse than expected at 74,000 versus their 203,000 estimate. While the unemployment rate improved to 6.7 percent versus its expected 7.0 percent, the Labor Force Participation Rate fell to 62.8 percent from its prior 63 percent, indicating a decrease in people looking for jobs.
While the Senate officially voted for Janet Yellen to succeed Ben Bernanke as the Fed Chair by the end of the month, several Fed speakers released statements regarding the pace of Fed-policy tapering. Philadelphia Fed President, Charles Plosser, stated that aggressive interest rate increases may be needed to counter inflation, while Richmond Fed President, Jeffrey Lacker, stated that a case can be made for a faster pace of tapering. Boston Fed President, Eric Rosengren, warned against any “dramatic steps” to wind down the Fed’s asset purchases, stating how roughly $10 billion to gradually reduce asset purchases at each FOMC would be appropriate. San Francisco Fed President, John Williams, stated that he expects that tapering will end sometime this year.
While 10-year treasury yields continued to sit at two-year highs near 3 percent throughout the week, the U.S. saw better-than-expected releases of Factory Orders, Trade Balance, ADP Employment, and Initial Jobless Claims.