Mortgage Rates Get Smoked By Inflation And Job Reports

Author

Michael Cassano
February 19, 2024

Hey there everyone! Hope you all weathered the weekend chill. The winter vibes hit us hard, and it seems like the mortgage market had its own frosty reception. Let's dive into the rollercoaster of the mortgage world.

Rates ended HIGHER compared to last week, and volatility was HIGH. Rates are in the low 7’s for most loan types without paying discount points. Paying discount points can get you in the high 6’s.

Inflation and Job Reports Shake Things Up

Last week hit us with a one-two punch. First, we got an uppercut from the robust employment report, signaling a tough-as-nails labor market. But the knockout blow came from the inflation reports, specifically the CPI and PPI, showing more heat than we bargained for. Now, mortgage rates have hit their highest levels for 2024, thanks to these reports and the jobs data waving a red flag about wage growth.

Now, higher wage growth is usually a thumbs-up, but it's got us a bit nervous about keeping consumer price inflation around the Federal Reserve's target of two percent. Looks like inflation might be taking a detour we didn't plan for. Remember, the Fed had been pumping up rates to cool the economy and bring inflation down. We were enjoying a nice decline in rates, thinking inflation was under control, and the Fed would start lowering rates in 2024. Well, surprise, surprise – things are changing fast with the hotter inflation and robust employment numbers in the past few weeks. Brace yourselves; The realization that rates may have to stay higher for longer is becoming a reality.

Key Takeaway : Rates took a leap last week thanks to the hotter than expected inflation reports and strong job numbers. Markets reacted with interest rates spiking to the highest levels of the year with the expectation that the Fed will keep rates higher for longer.

Market Adjusts Expectations for Rate Cuts

Hold on to your hats, folks – after those stellar job numbers and sizzling inflation reports, the market's changing its tune. Now, there's a 91.5% chance the Fed won't cut rates in March, and a 63.94% chance they'll hold off in May. We went from expecting 6 to 7 rate cuts in 2024 to now eyeing a maximum of 4 for the whole year. The Market now predicts the first rate cut will come in June.

We also went from anticipating 6 to 7 rate cuts in 2024 to now expecting a maximum of 4 rate cuts for the entire year.

Now, the timing isn't exactly ideal as we gear up for the Spring market buying season. Buckle up – rates might be sticking around these elevated levels until we see economic indicators hinting at a softer economy.

Key Takeaway : Market expectations have shifted quickly within the past couple of weeks. The market knows that the Fed cannot cut rates when inflation is increasing, and the job market is hot. As a result, the market is expecting the Fed to keep rates higher for longer, which is the reason we saw rates spike this week. Rates in the high 6’s and low 7’s might be the new norm for the foreseeable future.

Fed Meeting Minutes This Wednesday

Mark your calendars for some midweek excitement – the Fed meeting minutes are dropping on Wednesday! This could be a game-changer for us. We're expecting the Fed to remind us to stay patient and warn against rushing into rate cuts, given the strength of the robust U.S. economy. If the Fed keeps things vague, we might see rates climb higher. But if they spill the beans about a plan and rate cuts on the horizon, we could be in for a market rally and lower rates.

Key Takeaway: 5 Fed speaker events lined up this week. Keep your ears perked for Fed commentary – it could sway the interest rate market.

Stay positive, stay informed, and let's navigate this market rollercoaster together! 🚀