Mortgage Rates hang in the balance as ALL FED members expect to see higher interest rates

Mortgage rates this week are most likely going to continue to trend sideways, having it’s ups and downs in relation to which way the wind blows and market reaction to economic news, especially anything that relates to inflation – good or bad.

And here’s why, last week Jerome Powell spent 2 days on Capitol Hill. In remarks to the House Financial Services Committee on Wednesday, Jerome Powell cautioned that he and all other Fed members expect to raise interest rates further to bring down inflation. The only concession he made was that it appears the Fed won’t moves at the expedient pace they have since March 2022.

On one hand, they’re confident about their actions up until now, but maybe not SO BOLD as to think their work is done.

And I quote, “Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,” which came straight from Jerome Powell during the question-and-answer session with committee members.

Here are some of the key points we’re watching closely as we creep closer and closer to their next rate and policy decision coming up in July.

• The Fed is likely to continue raising interest rates in an effort to cool the economy and bring inflation under control. But when they do this and how much they do this by it still up for grabs.
• The Fed is aware that there is a risk of a recession, but Jerome Powell said that the central bank is “strongly committed” to its dual mandate of price stability and maximum employment…which he’s been saying ad nauseum for many many meetings in a row.
• Jerome also repeated that the Fed is “not trying to induce a recession,” but that it is “prepared to do whatever it takes” to bring inflation down.
• And lastly, he acknowledged that the Fed’s actions to raise interest rates could have a negative impact on economic growth, but he said that the central bank is “laser-focused” on its inflation goal. Remember when he said there would be MORE PAIN AHEAD?…This is that same admission, but stated a little more nicely.

In addition to these key points, Powell continues to shrink its balance sheet, which has ballooned to over $9 trillion in recent years. He said that the Fed will continue to reduce its balance sheet by allowing some of its Treasury and mortgage-backed securities to mature without being replaced. Remember, these are the instruments that helped us have historic low rates in 2020 and 2021.

In general Jerome Powell’s testimony was met with mixed reactions from lawmakers. Some criticized the Fed for not doing enough to raise interest rates sooner, while others expressed concern that the Fed’s actions could lead to a recession….and they’re both right. Which reinforces our opinion we’ve been sharing with you: The Fed is Stuck. They know it. We know it. They know that We know it.

Overall, Powell’s testimony gave a clear indication that the Fed is serious about bringing down inflation, even if it means taking some risks to the economy. It remains to be seen how successful the Fed will be in its efforts, but Powell’s testimony suggests that the central bank is determined to do whatever it takes to achieve its goals.

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And here’s a quick look at what we’re watching in the markets this week:

Tuesday: Consumer Confidence reading comes our and New Home Sales data

Wednesday: Jerome Powell is slated to participate in a panel discussion at the European Central Bank Forum on Central Banking in Sintra, Portugal.

Thursday: Final GDP Quarter over quarter is expected to come in at 1.4% which is Lower than we’d like to see in a thriving economy, but this IS in line with Fed expectations. We also get unemployment claims and pending home sales. Pending Home sales is important as it shines a light on inventory which we desperately need and will likely have a light impact on overall rate policy for the time being.

Friday: is all about Core PCE, one of the Fed’s favorite measurements! Look for this number to be in positive territory still, which means inflation still has not flattened, but keep an eye open for a miss to the high side of low side. A miss to the high side could weigh in on a Fed rate hike possibility in July, and a miss to the low side could hint at a possible July Pause once again, in order to gather more data.

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