As I mentioned, last week was packed with economic data
Tuesday, we got Flash PMI which came out a bit better than expected, which was nice to see.
Wednesday Fed Meeting Minutes came out – which is what I was really waiting for – and most of the attention was put on an interesting statement in the notes. The statement wat that “almost all fed members supported the rate hike”….ALMOST ALL…NOT definitively all.
That might sound like I’m splitting hairs, but when it comes to public releases like this…the word selection matters and is purposeful. So when things like this come out we can look at that piece and establish that someone, or “someones,” are starting to feel that the end could be near. However, there’s a problem. The problem is that all the data the Fed references as justification for their decisions is contradicting the idea that their rate hikes are over.
The markets seemed to have looked past the notes and are wagering that there will be another hike in March cause we’re no where near the fed desired inflation target and in their own words the labor market “remained very tight, contributing to continuing upward pressures on wages and prices.” Also know as the wage price spiral, Prices go up and cause wages to go up while wages going up cause prices to go up.
Thursday, we got Preliminary GDP reading that came in lower than expected, which does make us wonder where the easing is coming from, because the prior reading had a heavy dose of government spending packed into it. So are we to assume the same for this most recent reading that’s lower?…if that IS the case…then slowing in both the PUBLIC sector and PRIVATE sectors is slowing as it should be.
We got unemployment on Thursday which was better than expected putting more pressure on the Fed. They will need to cause more pain in the labor market to force less spending in the economy to stand a chance at returning to 2% inflation.
Friday, we get Core PCE which was another Whammy to the Fed. It was expected to come in at 0.4% and came in at 0.6%. Now that seems like a small difference; but it’s not… 0.6 is 0.2 higher than 0.4….but 0.2 is HALF of 0.4 which means that a 0.6% print is a 50% higher reading than was projected – AND REMEMBER this is still a positive number with A + sign in front of it….meaning that we’re still overall experiencing higher prices compared to the previous reading.
This week is pretty slow actually.
Monday will bring us Pending Home Sales with a pretty low forecast, kind of par for the course right now when it comes to readings related to mortgage and real estate. On this show AND the podcast, we’ve been talking about inventory shortages which are helping keep home process relatively high still and with mortgage rates still elevated too pending home sales have really become a trouble spot.
Tuesday we’ll get consumer confidence which is going to be really interesting cause sometimes the data we talk about contradicts the elevated optimism among consumers which can distort or even cover up some innerworkings of the overall economy. We’ll see how “Confident” the consumer really is.
Wednesday, we get ISM Manufacturing PMI which has been in contraction for months and we’re expecting that to still be the case this week.
Thursday unemployment will roll out and Friday the ISM Services PMI comes out, which had a surprising optimistic reading last month so it’s up for grabs this week whether it will be more good news OR swing back into the bad news category.
So what does all this mean for mortgage rates?
Mortgage rates have come under heavy pressure recently with the data supporting the assumption that the Fed will have to continue raising rates until they achieve optimal pain in their plan. Until then there is no reason for the market to assume that we will see rates returning back to historic lows or even going in that direction for long periods of time. It is certainly clear that the mortgage market is going to continue struggling without the Feds involvement in buying mortgage-backed securities. As that is the case it puts additional pressure on mortgage-backed security investors to hold the line and build a tough stomach over the course of these upcoming months of fed rate hikes and policy changes. Rates will ebb and flow in response to money coming into the mortgage-backed security market or money coming out of the mortgage backed security market.
As we have been teaching you, the more money that comes in, the lower the rates will go and vice versa money that leaves the market creates more scarcity which causes rates to increase.
We are also at the point in the cycle where we’re getting closer and closer to the next Fed meeting and everyone’s antennae are up looking and listening for any cues that could signal change that impacts the rate market directly.
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