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Last week, interest rates held near the best levels in a month as Fed Chair Powell testified on Capitol Hill. Let's discuss the big news last week and gear up for important events in the week ahead.

Powell on the Hill

"Given how far we've come, it may make sense to move rates higher but to do so at a more moderate pace." Fed Chair Powell on Capitol Hill, 6.21.23

On Wednesday, Federal Reserve Chair Jerome Powell gave his semi-annual testimony to Congress regarding the state of the economy and interest rates. His prepared speech was very similar to the statement the FOMC released last week when they "paused" the string of 10 rate hikes. The quote above, from the question-and-answer portion was one of the highlights as it reminds the markets that Fed rate hikes are nearing an end.

The next Fed Meeting is at the end of July. If the incoming data continues to show inflation coming down and unemployment going higher, the Fed may very well not hike again next month. Currently, the markets are pricing in a 75% probability of a .25% rate hike next month. This will likely change as news comes in.

Homebuilders Feeling Good

As a sign of long-term confidence in the housing market, homebuilders put shovels in the ground at a rapid pace in May. Construction of single-family homes jumped 21.7% from April as builders try to meet soaring housing demand. Housing starts rose to a 1.63M annual pace in May, up sharply from 1.34M in April. There are many reasons for builders to be optimistic about the future. Below are just three:

1. Housing demand is high, and supply is low.
2. Labor market is tight; jobs buy homes.
3. The Fed is nearing the end of rate hikes.

Bank of England Raises Rates

In response to a higher-than-expected inflation report in the UK earlier this week, the Bank of England raised their rates by more than the expected .50%. The Bank also said more rate hikes are coming to help lower inflation. This is important to follow because their inflation is over 8% and next month our Consumer Price Index will be in the 3.00% range. So that central bank is behind the US on monetary policy and inflation and must catch up with more rate hikes. This could add to the uncertainty and volatility in the months ahead.

It's important to note that UK long-term interest rates improved on the rate hike as markets feel the Bank of England regained credibility in its fight versus inflation. This is another example where rate hikes help long-term rates.

Bottom line: The "higher for longer" narrative from the Fed and clear technical factors are limiting the improvement in rates. At the same time, we can look at home builder optimism as a sign that the worst is behind us as it relates to rates and inflation. There are many great opportunities to be had and more coming. Better days are ahead.

Last week the Federal Reserve decided to pause their string of rate hikes for the first time in 15 months, yet long term rates moved higher. Let's discuss what happened and look at the events to watch for this week.

Higher For Longer Still

On Wednesday, the Federal Reserve made a decision to not hike the Fed Funds Rate, breaking a string of 10 consecutive hikes, leaving the rate in a range of 5 to 5 1/4.

This move was widely expected by the financial markets. However, the markets were delivered a surprise when The Fed announced its members believe there will be two more rate hikes this year. Heading into the meeting, it was speculated that the Fed may raise rates one more time in July. This additional hike caused a lot of volatility with a spike in short term and near term rates here and abroad.

The Fed Outlook

Every three months, the Federal Reserve releases a Summary of Economic Projections which gives the markets a sense of what Fed members are seeing regarding economic growth, inflation, unemployment, and where interest rates are headed. The forecast shows economic growth coming in slightly stronger than previously expected, but still at a historically slow 1%. Core inflation, which strips out food and energy, is expected to be higher than previously forecasted. Unemployment is forecasted to come in lower than originally expected. Lastly, many Fed members believe interest rates will need to go higher to cool off the labor market to reach the Fed's inflation target of 2.00%

The Press Conference

After the Fed statement was delivered, Fed Chair Jerome Powell held a press conference, where he took questions and tried to give more color as to what Fed members have been thinking. Within the press conference the Fed Chair did say they have not talked about the July rate hike, and the next meeting will be a "live meeting" where they will respond to the economic data in advance of that report. This means, if inflation continues to come down as it has and the unemployment rate edges up like it did last month, the Fed may very well pause rate hikes again at the July Fed meeting. As of this moment, the chance of a Fed hike in July stands at 75% probability.

What It All Means

After all the smoke cleared from the Fed Meeting, we are left with more of the same...uncertainty and volatility around how far the Fed will go with interest rates and where the economy is headed.

Rate Hikes Around the Globe

Last week other Central Banks increased their rates, including the Bank of Canada's surprise rate hike. And this past Thursday on the heels of our Fed rate hike, the European Central Bank (ECB) raised their rates to the highest level in two decades.  As rates around the globe go higher, it puts upward pressure on our rates. The opposite is true.

Bottom line: It may be tough to see long-term interest rates improve much in the near term as the markets digest the notion that the Fed will potentially raise rates two more times, with no rate cuts this year. Be sure to watch the data and work with your experienced loan officer who follows this closely.

This past week interest rates ticked higher in response to a surprise rate hike from above our Northern border. Let's discuss what happened and talk about the big week ahead.

Oh Canada

As the saying goes, "Where there's smoke there's fire". A big news story this past week was the Canadian wildfires raging and sending smoke, affecting nearly 100,000,000 American citizens. But that was not the only big news coming out of Canada.

On Wednesday, in a surprise move, the Bank of Canada raised interest rates by .25%. This lifted their benchmark rate to the highest level in 20 years. In response, interest rates around the globe crept higher. The main concern? This surprise rate hike came after two consecutive meetings where the bank of Canada did not raise rates. There was immediate market fear that our Federal Reserve might do the same.

In recent weeks, the Fed has signaled they are going to pause and not raise rates this week. The Fed has also said there could be a "skip", where they do not raise rates in June, but they come back and raise rates in July, if needed. The markets have ignored the idea of a skip, until Wednesday, when the Bank of Canada raised their rates.

As of this moment, there is a slim chance the Fed lifts rates next week. But come July there is a 66% chance the Fed raises rates once again. There will be a lot of important data that will be reported and can affect whether the Fed raises rates or not.

Treasury Refunding

With the debt ceiling now officially lifted, the Treasury Department needs to refund the Treasury General Account, which was depleted during the past several months. The Treasury Department does this by selling bonds to raise money. It has been said that the Treasury needs to sell as much as $1 trillion worth of bonds, bills and notes over the next six months to keep the money moving. There are negative headlines in the media suggesting this will be a big problem and will cause rates to move higher. Keep in mind that in the past, the treasury department sold much more than this, and in a shorter time frame, so history is repeating itself.

Bottom line: Interest rates remain elevated and near important technical levels as we enter a week full of market moving news.

This past week interest rates moved lower on optimism the debt ceiling will be lifted and on surprisingly low inflation out of Europe. Let’s discuss what happened and investigate the week ahead.

Debt Ceiling Fix Coming 

As of this writing, the House of Representatives passed a bill to suspend the U.S. debt limit through the 2024 election. Included in the bill are non-defense spending caps, expansion of work requirements for some food stamp recipients as well as a clawing back of unused COVID-19 relief funds.

This bill now goes to the Senate where it will need to be approved and then sent to President Biden’s desk for signing before the June 5th deadline, where it is believed the U.S. would no longer have funds to pay its debt.

In response to the optimism, short-term treasury yields like one-month bills moved sharply lower as the fear of default is removed. This decline in yields spread across the entire bond market, with the 10-year note yield moving from 3.80% to 3.60% in the matter of days.

Fed Pause in June

A couple of key Federal Reserve officials spoke this week and suggested the central bank should not raise rates at the next Federal Open Market Committee on June 14th. Why? They are citing the policy lag effect and its uncertain impact. Essentially, the Fed has already raised interest rates from 0.0% to 5.00% in a little over a year, most of which has yet to seep into the economy. With inflation declining, the economy slowing and the banking crisis lingering, it is probably a good time for the Fed to pause.

On Thursday, the inflation reading unit labor costs, within Q1 Productivity, came in well below expectations. This means it is costing less for businesses to produce, which is disinflationary and another reason for the Fed to take a break from rate hikes.

Low Inflation Surprises in Europe

This past week, Germany, Spain, and other countries reported inflation was well below market expectations. As a result, yields in Europe declined, and that helped U.S. yields to move lower as well. If the trend of lower inflation continues here in the states, and in Europe, we should expect rates to continue to decline.

Bottom line: With some of the uncertainty surrounding the debt limit deal lifted and with inflation data cooling, the mortgage market could see a continued ease in borrowing costs.

Memorial Day was declared a federal holiday in 1971 and commemorated on the last Monday in May. Enjoy the unofficial kick-off of Summer and remember those who perished serving our country.

Debt Ceiling Debate

Failure to reach a deal..."Would be a negative signal of the broader governance and willingness of the U.S. to honor its obligations in a timely fashion and would be unlikely to be consistent with a "AAA" rating" – Fitch rating agency.

As of this press time, there has been no resolution to the debt ceiling negotiations. This event has caused major disruptions in the financial markets, including a spike in interest rates over the last few weeks.

Adding to the uncertainty, the bond rating firm Fitch has put our debt on a negative rating watch. This is a direct threat that if we do not resolve the debt ceiling, a credit downgrade would result.

History Might Be On Our Side

Back in April 2011, our debt was put on negative watch by credit agencies and on August 5th, 2011, our debt was downgraded. What happened at that time? Rates improved.

After a week plus of rates edging higher, maybe this event will start the process of stabilization. If you look at the chart section below, you can see MBS prices were able to remain above support, which means rates stopped increasing.

The lack of resolution on the debt ceiling may be a reason why the Fed may very well pause on hiking rates in June.

Bottom line: As the debt ceiling debate continues unresolved, we should not expect much if any improvement in interest rates.

This past week interest rates ticked higher in response to the still unresolved debt ceiling debate. Let's look at what happened last week and discuss events to watch for this week.

Debt Ceiling Fallout

As of this writing, there has been no resolution to the debt ceiling debate, where Congress and the White House agree on a plan to lift our spending limit. In the absence of lifting our debt ceiling, there is a risk of debt default and/or a credit downgrade. Any of those scenarios would be very disruptive to the financial markets and our overall economy.

We are already seeing upward pressure on rates due to the lack of a resolution. The one-month Treasury bill spiked to 5.60%, up from 4% just a few weeks ago. This dramatic spike has also placed upward pressure on the 10-year yield and mortgage rates. The former hit two-month highs last Thursday.

There is optimism a deal will get done, but until that happens, we should expect continued upward pressure on rates along with a lot of volatility.

Regional Banks Faring Better

Some good news in the banking sector. A couple of banks, which were feared to have problems, reported larger than expected deposits over the first quarter. This gave a sense that the worst of the banking crisis may be behind us. It may still be too early to tell, but stocks blasted off on Wednesday from this optimism.

If we do indeed see the banking sector stabilize, it would likely embolden the Federal Reserve to continue talking about holding rates higher for longer.

Fed Speak Continues

Federal Reserve officials were out offering their thoughts on rates and inflation and generally spoke tough about the need to keep rates higher for longer. Some, like Fed Governor Phillip Jefferson, offered hope for a June pause on hikes saying this, "History shows that monetary policy works with long and variable lags, and that a year is not a long enough period for demand to feel the full effect of higher interest rates."

33% For .25%

Despite high uncertainty around the debt ceiling debate and banking sector, the chance of a .25% rate hike in June is now at 33%. Remember, Fed rate hikes have no direct impact on home loan rates, but this will affect credit cards, auto loans and home equity lines of credit.

Mixed Messages

Home Depot reported poor earnings, casting a dark shadow on the markets. But then the very next day, Wal-Mart reported fantastic earnings, which was highlighted by broad purchases from their consumers. These conflicting signals on the health of the consumer have added to the uncertainty in the financial markets and thus what the Fed should do next.

Retail Sales for April came in less than expectations when factoring in inflation. Meaning, because of higher prices, consumers purchased less. Reports like this elevate fears of more rate hikes ahead.

Bottom line: As the debt ceiling debate continues unresolved, we should not expect much, if any, improvement in interest rates.

This past week, mortgage rates held near the best levels of the last several months in response to the lowest inflation reading in two years. Let's discuss what happened and have a look at this week.

Inflation Moving Lower

The Consumer Price Index (CPI) for April, a closely watched reading on consumer inflation, was reported at 4.9% year over year. This was lower than what was expected and the lowest reading since April 2021.

Last year the CPI was running above 9%, so seeing annual readings under 5% is a welcome sign.

There is a reason to be optimistic about lower inflation ahead. Shelter, which includes rent, makes up a sizable portion of CPI. That figure, which is lagging as declines in rent take time to hit the CPI report, are finally appearing in the report. We should expect the shelter component to continue lowering inflation later this year and into 2024. This will help keep long-term rates (like mortgage rates) all beneath current levels.

1.5%

The softening inflation reading is adding to the idea that the Fed should pause on rate hikes in June.  As of right now, the financial markets are pricing in just a 1.5% probability that the Fed will hike rates at their next meeting in June.

After the fastest rate hiking cycle in 40 years, this would be welcome news. Despite Fed officials saying otherwise, the financial markets are also pricing in a high probability of multiple Fed rate cuts in the second half of this year. If inflation cools further and unemployment starts to rise, this may come to pass.

Debt Ceiling Debacle

Add one more uncertain event to our economy, and it is the debt ceiling debate taking place in Congress. Essentially, we will reach the limit to what our government could spend as early as next month. This means Congress has to agree to raise the limit regarding what we could spend, or we risk a potential debt default and credit downgrade like we watched in 2011.

Most everyone believes that aside from the political grandstanding and bickering back and forth, a deal will get done to ensure the U.S. doesn't default on its debt. However, in the near term it could cause increased volatility, and potentially an uptick in rates, including mortgage rates, as the threat of a downgrade rises.

Sell In May

After a rough 2022, stocks have enjoyed a couple of strong quarters of gains. Now we enter the summer months and the old adage "sell in May and go away" is gathering steam. Essentially, the idea is to sell stocks in May and re-enter the market later in the year. Why is this important? If stocks move lower amidst uncertainty, bonds and interest rates will likely be the beneficiary.

Bottom line: This is an important moment for rates. There is a pending breakout that could cause yet another fast improvement in rates. Follow this closely and be prepared to strike at any opportunity!

This past week the Federal Reserve raised rates for the 10th time in a little over a year. Let's discuss what happened and see what this week has in store for us.

The Last Hike?

As we expected, the Federal Reserve raised the Fed Funds Rate to a range of 5.00% - 5.25%. Remember, this interest rate affects short-term loans like credit cards, autos, and home equity lines of credit.

The big question is whether this will be the last hike. When the Fed statement was released, the markets believed the Fed was signaling a pause by omitting the following line from the previous statement: "The Committee anticipates that some additional policy firming may be appropriate."

However, shortly after the statement was released, Fed Chair Powell hosted a press conference and right at the top said the Fed Members have not discussed a "pause" in rates. Bottom line? Expect more uncertainty and volatility as it relates to rates.

Sound And Resilient

This is the term Fed Chair Powell used to describe the banking sector. Unfortunately, we are seeing more banks have issues. This week it was First Republic taken over by JP Morgan Chase and as of this writing PacWest was said to be "exploring strategic options." The fear of banking contagion has elevated uncertainty in the financial markets. It's not clear if and how many more banks will continue to have issues. Bottom line? The fear of this story has created a "safe haven" to trade into bonds where prices move higher, and rates move lower.

European Central Bank Hikes By Less

The European Central Bank (ECB) hiked their benchmark rate by .25%, the smallest since the start of their hiking cycle. Like our Fed, they too signaled they would be "data-dependent" going forward, leading markets to speculate a pause on future rate hikes.

Bottom line:The Federal Reserve is sending mixed messages on the future direction of rates. Meanwhile, long-term rates, which the Fed doesn't control, are near their best levels in months and sense all the uncertainty in our economy will prompt the Fed to pause and potentially cut rates later this year. The incoming data and issues in the banking system will determine what happens next.

Home loan rates continue to stabilize ahead of this week's Fed Meeting. Let's discuss what happened last week as we await yet another Fed rate hike Wednesday.

New Home Sales Soared In March

Housing continues to show some positive signs lately, thanks to the decline in mortgage rates. This week, New Home Sales for March grew by 9.6%, when the markets expected a 1.6% decline. The sales pace remains 3.4% lower than in March of 2022 but the improvement we are seeing since the beginning of the year highlights the strong demand for housing coupled with interest rate sensitivity.

The Northeast saw the largest pickup in sales. Warm weather could have helped fuel the buying activity. Builders also used incentives and buydowns to close deals.

Home Prices Rise - First Time In Eight Months

The S&P CoreLogic Case-Shiller National Home Price Index rose month over month in February, breaking a string of seven consecutive months of declines.

The Federal Housing Finance Agency also reported a price rise for February. What is sparking the increase in prices in what overall remains a slower housing market? Low housing inventory and a nice decline in home loan rates since the peak in October.

The home price gains continue to decelerate and this is good for restoring market balance as well as helping lower future inflation readings.

First Republic - The Next Bank Problem?

Weeks after the SVB collapse, First Republic Bank, despite multiple bailouts, is said to be on the brink of failure. There is some speculation that measures might need to be taken over the weekend to help the Bank survive.

This story reignites uncertainty around financial stability as we approach next week's Fed Meeting. Higher short-term rates, controlled by the Fed, only make problems worse for the banks. The Fed's comments on the banks next week will be market-moving.

Technical Barriers To Further Rate Improvement

Mortgage and housing professionals monitor both macroeconomic conditions, as well as technical factors (chart signals), to help determine rates trends and changes to them.

Currently, the 200-day Moving Average is limiting further rate improvement in the 2-year Note yield and the 10-year and mortgage-backed securities (where home loan rates are derived).

Next week's Fed Meeting, where it is widely believed the Fed will end this rate hiking cycle, could be the trigger to push bond prices above this ceiling.

One thing for sure? Rates can't improve further until prices break through this barrier. And if they do, we could very well see another leg lower in rates.

Bottom line: Home loan rates have peaked, inflation has peaked and next week the Fed rate hikes are likely finished. Couple this with the bright future in housing and it's a reason to go shopping today.

Home loan rates have ticked higher week to week but some bad economic news halted the rise. Let's discuss what happened and look ahead into next week.

Positive Bank Earnings Impact

The rise in home loan rates over the last couple of weeks has mainly been in response to good news from the banking sector. Corporate earnings from the likes of JPMorgan Chase, Bank of America, Charles Schwab, and others have lifted fears of a contagion from the recent bank failures. With those fears lifting, it has now brought focus back to the Federal Reserve, and the threat of more rate hikes.

Fed Rate Hike Coming

With bank failure fears easing, Fed officials have been speaking loudly about the need for more rate hikes. Some OK economic reports over the last week have also given the Fed cover to raise rates once again. Currently, there is an 85% chance the Fed will raise rates by 0.25% on May 3rd.

Now the question is will this be the last rate hike? Will 5.00% to 5.25% be the terminal rate? If you try to listen to Fed officials, you will hear a lot of mixed messages. Fed President Bullard was speaking out this week saying he wants to see the Fed Funds Rate at 5.75%, which is an additional .75% higher than current levels. Fed President Bostick had a more cautious tone, saying the Fed should raise rates one time and pause to see how the economy responds to all the previous hikes.

As you can imagine, the wildly different opinions from Fed members move the markets all over the place.

Inflation With Your Scones

The bond market is global. So, when interest rates move higher in other parts of the world, it puts upward pressure on our yields as well. Midweek, the UK reported consumer inflation of over 10%, when markets were looking for a reading below 10%. If that were not enough, food inflation ran at the highest clip since 1977. Inflation in England is now moving twice as fast as it is here in the United States, with our CPI at 5%. The stubbornly high inflation in the UK caused their interest rates to move higher, which lifted our interest rates to the highest levels in weeks.

3.60% Yield Resistance Holds

The 10-year Note yield, which ebbs and flows with home loan rates, is remaining beneath important yield resistance at 3.60%. This is a key technical level, which has been limiting the rise in rates over the past month. With the banking crisis looking less uncertain for now, there is a threat that rates will drift higher still. Staying beneath 3.60% would be an excellent sign for longer-term interest rates.

Bad News is Good News

Last Thursday, Weekly Initial Jobless Claims, a leading indicator of labor market health, came in worse than expected. It showed that more people signed up for first-time unemployment benefits. The bad news is good news for the Fed, which has been looking for an uptick in unemployment. On top of this, the Philadelphia Fed Index showed that manufacturing in that region slowed dramatically. Slower growth means less need for rate hikes.

Bottom line: Home loan rates have stabilized. Spring is in the air and the demand for housing remains high. Opportunities exist for nimble would-be buyers.