MMG Weekly | April 8, 2024

A Look Into the Markets

This past week interest rates moved higher with the 10-year Note yield briefly touching the highest levels of the year. Let’s discuss what has happened the past couple of weeks and look ahead.

The Fed and Rate Cuts

A little more than two weeks ago, Federal Reserve Chair Powell, led the world to believe the Fed will be cutting rates three times in 2024. The Fed’s dot plot, which is a rate forecast of the Fed members themselves, also confirmed three cuts before year-end.

Now, just days later, and thanks to a hotter-than-expected inflation report, and various Fed speakers, the idea of three cuts, or even one cut is very much at risk.

Two Fridays ago, the Fed’s favorite gauge of inflation, the Core PCE, was released. The number came in at 2.8% year-over-year, which matched expectations. What’s the problem? One – It did not come down from the previous month and remains sticky. Two – The previous month’s reading was revised higher to 0.5% for the month! The 0.5% annualized means inflation would be 6%; THREE times the Fed’s target of 2.00%. This completely spooked the bond market and has since put Fed members on their heels in response.

For instance, Atlanta Fed President Raphael Bostic shared that he only sees one rate cut in 2024 and that it would be coming in the fourth quarter. Other Fed members have shared similar sentiments. Where were these predictions just two weeks ago when the Fed issued its dot plot?

After the spike in rates this week, Fed Chair Powell attempted to soothe the markets by suggesting three cuts could still happen this year.

It’s this lack of consensus, uncertainty, and land of confusion that is helping keep interest rates elevated. 

Rate Cuts Abroad

While the U.S. tries to figure out when to cut rates, many other parts of the globe have begun or are beginning to cut rates. The latest this week was the EU, which shared that inflation has moved unexpectedly lower and June might be the right time to cut interest rates. The good news here? As economies around the globe struggle and their interest rates are lowered, that puts downward pressure on our interest rates. So, while this past week has been very unnerving about rates going significantly higher, there are many factors to consider besides inflation and the Fed.

Bottom Line: We joke about the land of confusion, but that has essentially been the mortgage and housing world for over 2 1/2 years. Questions on “Where is inflation going?” “How is the economy doing?” and “What is the Fed going to do?” remain unanswered. We do know the old saying “The cure for higher rates is higher rates”; meaning as rates edge higher, it attracts investors who buy bonds… which stabilizes rates. Finally, the next move from the Fed will be a cut and it will probably come sooner rather than later. Better days ahead.

Looking Ahead: Next week it’s all about inflation and Treasury auctions. The Consumer and Producers Price Indexes will be released and indicate whether the recent fears of inflation reaccelerating are warranted. The Treasury will also be selling a lot of new bond issuance to fund our government, and this too can weigh on bonds and rates.

Mortgage Market Guide Candlestick Chart

Mortgage bond prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 6.0% coupon, where currently closed loans are being packaged. As prices move higher, rates decline, and vice versa.

If you look at the right side of the chart, you can see how prices have backed away from $101, causing the recent spike in rates. For mortgage rates to improve from here, we need to see prices push beyond that level.

Chart: Fannie Mae Mortgage Bond (Friday April 5, 2024)


Economic Calendar for the Week of April 8 – 12

John Higgins

NMLS #136061

The material contained in this newsletter has been prepared by an independent third-party provider. The content is provided for use by real estate, financial services and other professionals only and is not intended for consumer distribution. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, there is no guarantee it is without errors.

As your mortgage professional, I am sending you the MMG WEEKLY because I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.


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