Weakness in housing measures highlighted last week’s economic news, as pending home sales barely inched up, and home sales and mortgage applications declined. In other news, the Federal Reserve kept its federal funds rate unchanged.
In a relatively slow week for economic news, retail sales reversed a downward trend and home buyers began shopping as weather improved. Yet, the markets paid close attention to the yield of the 10-year Treasury and its approach to 3%.
Following a two-day policy meeting, the Board of Governors of the Federal Reserve System raised its prime rate Wednesday by a quarter point, from 1.25% to 1.50%. The increase - which affects interest rates on several instruments, such as credit cards and mortgages - marks the third increase this year and just the fifth since 2008. The Fed lowered interest rates to zero after the 2008 financial crisis in an effort to encourage borrowing and spending, which would accordingly spur the economy. As the economy has gradually recovered, the Fed has raised rates in steps, though rates are still relatively low historically. The intent when raising rates is to control inflation by balancing demand/supply and attracting foreign investment.