The market seems to have wrapped its collective head around the idea that rates are going to be higher for longer.
Most of the drama last week in the mortgage rate world happened on Monday after the monumental US Retail Sales result for March dropped.
We already talked about that last week.
Thankfully, the drama settled down (at least for bonds) and rates have been flat since.
The market seems to have wrapped its collective head around the idea that rates are going to be higher for longer.
Now the question is how high and how long? We’re back to waiting on new (consequential) data to give us clues about that.
The next report that carries that consequential designation is the jobs report for April due out next Friday (May 3rd), followed by the April CPI report due the following week.
The possibility of the Fed hiking rates again is back in the conversation. No one is making serious bets in that camp yet, but the fact that it’s a possibility brings a new level of risk to the market.
How’s Brian feeling about mortgage rates? (this is from last week’s copy)
Even less optimistic, but still waiting for the shoe to drop. (updates below)
- 3-month outlook (June 2024) – My whole thesis on rates coming down relied on the job market showing cracks. It hasn’t. Now I think rates have to go higher before they can go lower.
- 6-month outlook (September 2024) – Wild-ass guess = The job market is actually improving, consumers keep spending, and inflation is resurging…a lot can happen in 6 months, but until the data starts trending in the other direction it’s hard to bet on lower rates. It looks like we might have a chance to challenge last year’s high of 8%.
- ***12-month outlook (March 2025) – Wilder-ass guess = My bet is on something breaking in the next 12 months, the stock market correcting as a result, and mortgage rates improving to the 6.0-6.5% range.
***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
- Stocks wobble after Powell warns that rate cuts will likely come later than expected.
- Mortgage rates surge past 7%, reaching highest level since November
The Week Ahead
- It’s a slow news week, at least as it relates to usually consequential data. That doesn’t mean drama can’t come from somewhere unexpected. Of the economic reports on tap that could make waves, the first published data about Q1 GDP (economic output for the whole country) is due out on Thursday, and the Fed’s preferred measure for inflation (PCE) is due out on Friday. You’d think the PCE would be a big deal considering it’s the Fed’s preferred data but because it usually doesn’t include much in the way of new information (it trails the CPI report by two weeks, and the information is similar, so the market already reacted to it).
