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Julie C. Nichols General

ECB Announces Taper
The most highly anticipated event of the week, the European Central Bank meeting, contained no surprises and caused little reaction. Reports about President Trump’s favored pick for the next U.S. Fed Chair caused some volatility during the week but had only a small net effect. The key GDP report also was not much of a market mover. In the end, mortgage rates finished the week slightly higher.
At Thursday’s meeting, the European Central Bank (ECB) announced future plans for its bond purchase program which closely matched investor expectations. The ECB will extend its bond purchase program from its current end date in December by nine months to September and will reduce its monthly purchases from its current level of 60 billion euros to 30 billion euros beginning in January.
President Trump is expected to soon announce his nominee to serve the next term as Fed Chair. On Tuesday, it was reported that the two leading contenders out of the many people under consideration were Jerome Powell and John Taylor. The report that Taylor is one of the two finalists caused some concern for investors. Taylor is viewed as the candidate most in favor of a more rapid increase in the federal funds rate. The news caused mortgage rates to move higher. On Friday, however, another report named Powell as the top choice. Under Powell, it is expected that the Fed would maintain a course for monetary policy similar to the current one. Following the news, mortgage rates offset the increase from the report on Tuesday.

The first estimate for third quarter Gross Domestic Product (GDP) growth released on Friday was 3.0%, well above the consensus forecast of 2.5%. However, an increase in inventories accounted for 0.7% of the growth. An increase in inventories is typically viewed similar to a one-time event and is discounted when evaluating the underlying strength of the economy.
Due to the large influence of inventory levels on the results, investors considered the GDP data to be close to the expected levels and showed little reaction.
Looking ahead, it will be a big week. Investors expect President Trump to announce his nominee for Fed Chair sometime next week. The next Fed meeting will take place on Wednesday. Investors do not expect any policy changes to be announced. There will be several major economic reports released as well, capped by Friday’s important monthly Employment data. In particular, the Core PCE price index will be released on Monday and the ISM national manufacturing index on Wednesday.

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