We’ll have to wait until April 5th for the next jobs reports.
Mortgage rates are lower this week! 🥳
I was mentally prepared for the opposite, so it feels nice to write that.
The Fed met last week. They kept their policy rate steady as expected.
They kept their plan for rate cuts and the tone of their narrative steady as well, which was not expected. I don’t necessarily agree it was the right move, but that’s here nor there.
That gave bond investors a huge sigh of relief, hence the lower rates.
We won’t see rates go significantly lower without pain in the job market. The weekly jobless claims numbers have been relatively steady all year, so that doesn’t appear to be coming soon.
We’ll have to wait until April 5th for the next jobs reports – until then we’ll likely bounce around in this range between 6.8%-7.2%.
How’s Brian feeling about mortgage rates?
Not as optimistic anymore… 🧐 (no changes from last week)
- 3-month outlook (May 2024) – The Fed narrative pivot has added fuel to the economy. The stock market is evidence of that. The new inflation numbers are as well. The 7% range (give or take) will likely be our home for a while.
- 6-month outlook (August 2024) – I still expect the job market to show some cracks in Q1/Q2 – we’re seeing an increase in layoffs being announced. People experience layoffs are having a harder time finding new jobs, as evidenced by the rising continuing jobless claims numbers. We saw retail sales and consumer spending fall a little already – I expect that trend will continue, BUT if the job market remains strong that could be a pipe dream. Housing costs (the biggest contributor to inflation right now) will stay flat or fall with more apartment units coming online which will help inflation concerns and rates can come back down to the mid to high 6% range.
- ***12-month outlook (February 2024) – Barring any major distress in the banking world (very possible with the commercial lending situation), it’s now hard to see a path below 6% in the next 12 months. The mid-6% range seems most likely at the moment.
***The wildcard is the US government. If they don’t do some massive budget cuts to get spending under control soon I could see the demand for US Treasury debt falling off a cliff and that could drive all rates higher. Or maybe the 30-year fixed mortgage will be seen as a safer bet and the yield between the two will no longer correlate as it has in the past? 🤷♂️
Other Relevant Macro News
- Switzerland gets a surprise rate cut. Will other central banks move before the Fed?
The Week Ahead
- Bond investors will be paying close attention to Fed member press conferences. They’ll also be looking for revelations about inflation in Friday’s PCE report (the Fed’s preferred inflation measure). That said, neither is likely to give mortgage rates the momentum to break out of their current range. For that, we’re waiting 2 weeks for the next jobs report.
