Elections and Consumer Behavior
As one would expect, as the date of the presidential election draws near, the words are heating up from both sides. And while we don’t take sides with regard to these words, we must point out that these heated exchanges can affect the performance of the markets. Certainly, strong statements can affect consumer behavior. For example, if both sides claim that if you elect their opponent the economy will be a disaster, then logic would tell you that the economy will be a disaster either way.
Of course, intellectually, you know that this can’t be the case. But that does not mean that strong statements like these can’t affect consumer behavior in the short run. And with the Olympics over, we also know that the presidential election will be occupying more and more of the news. At least until the football season starts! As we get closer to the election, the rhetoric is likely to get even stronger, especially from the side which is behind in the polls at that time.
We pointed out previously that the timing of the election can also affect the timing of decisions to raise rates or make strong statements coming from the Federal Reserve Board. If you believe that the Fed will avoid taking action right before the election, then September is their last chance to raise rates because their November meeting is one week before the election takes place. This is not to say that this makes the Fed more likely to raise rates in September. We did get a strong employment report for July, but there have been weak reports as well, such as the retail sales data. Our guess is that we would need a really strong jobs report for August in order to prompt the Fed to raise rates in September.
The Weekly Market Update
Rates fell slightly in the past week. For the week ending August 18, Freddie Mac announced that 30-year fixed rates decreased to 3.43% from 3.45% the week before. The average for 15-year loans eased down to 2.74% and the average for five-year adjustables rose slightly to 2.76%. A year ago, 30-year fixed rates were at 3.93%, exactly one-half of one percent higher than today's levels.
Attributed to Sean Becketti, Chief Economist, Freddie Mac -- "Ahead of the release of the FOMC minutes for July, 10-year Treasury yields were little changed from the prior week. The 30-year fixed-rate home loan fell 2 basis points to 3.43 percent this week, erasing last week's uptick. For eight consecutive weeks, rates on home loans have ranged between 3.41 and 3.48 percent. Inflation is not adding any upward pressure on interest rates as the Bureau of Labor Statistics reported that the Consumer Price Index was unchanged in July."
Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.