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Fall Off In US Mortgage Applications

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Fall Off In US Mortgage Applications

The US Mortgage Bankers Association has published this week’s Mortgage Application figures. At -3.5%% this is a bit of a drop on last week’s -1.2%. There is however no real surprise in this number following yesterdays mixed housing data and the slightly volatile nature of this short term indicator.

The markets, particularly the currency markets tend to take this weekly housing statistic in their stride, reacting only when there is sustained deviation from expectations. More likely to move markets today is the Durable Goods number which is expected shortly.

In the meantime, the President of the Philadelphia Reserve Bank, Charles Plosser, in a speech last night called for a ‘rules based’ approach to monetary policy. This carries weight as Plosser is a voting member of the Federal Open Markets Committee. The FOMC last week further moved away from tying policy decisions to fundamental economic indicators. However the Philly Fed chief argues that maintaining such a link brings certainty and stability to the markets.

This statement puts Charles Plosser at odds with Janet Yellen and the rest of the FOMC members. Plosser, unlike his peers, has always been regarded as hawkish on interest rates. He went on to outline his view that US interest rates would rise to as much as 3% by the end of next year and possibly reach as high as 4% in 2016.

Janet Yellen’s view on the other hand is that rate rises should begin six months following the end of the Fed’s Bond Buying Program, this would be towards the end of the first quarter next year. Yellen’s commitment to a ‘timing’ based approach to monetary tightening is in contrast to Plossers ‘data’ driven methodology. Plosser however is but one voting member on the Feds monetary policy committee, as much as he may attempt to convince his fellow members to focus on a rules based approach, it is extremely unlikely that the group will deviate from Yellen’s time line.

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