Will this summer be hot?

Will things heat up this summer? The big question continues to be mortgage rates, and for rates, we look to the Fed and their borrowing rate**. This borrowing rate is one main way the Fed puts a governor on the market and economy. Slows inflation, increases unemployment etc…So, what do we expect? Read more below.

**The Federal Funds rate serves as a benchmark for short-term interest rates, influencing the cost at which banks lend money to each other overnight. Changes in the Fed Funds rate can indirectly impact mortgage rates by affecting the overall interest rate environment, influencing borrowing costs for banks and subsequently impacting the rates they offer to consumers on mortgages.**

Key Highlights:

Bad news and Good news.

Last week, the Federal Reserve met and again held the borrowing rate steady at 5.25-5.50%. This was not a surprise but was right on par with what was expected and therefore mortgage rates responded favorably moving down just slightly.

Fed Chair Jerome Powell again characterized the level of rates as “restrictive,” and said that “it will likely be appropriate to begin dialing back policy restraint at some point this year.” 

The next big indicator will be this Friday’s PCE (Personal Consumption Expenditure). This is a key indicator for the Fed of overall inflation. The bad news is that it is unlikely to make significant moves toward their 2% goal with this report nor in the following reports within the 2024 fiscal year. There is just too much that would have to change in order to hit that target. 

The good news is that at Wednesday’s press conference Fed Chair Jerome Powell said, 

1. They would not wait until we hit the 2% goal to begin adjusting rates 

2. Other indicators such as the unemployment rate could encourage them to lower the borrowing rate sooner. 

The Fed has a dual mandate, to keep prices low (inflation) and to keep the economy moving with jobs (unemployment rate). The Fed seems to like the 3.9%-4% range for unemployment which we are already seeing. So, if the unemployment rate were to continue to tick higher in the next two reports we could in fact see the Fed lower the borrowing rate as early as June. 

Read more…The Fed’s Conundrum: Interest Rates Are Both Too High—and Too Low

What’s moving rates in the days ahead:

Thursday: Initial Jobless Claims, Existing Home Sales, Consumer Sentiment
Friday 3/29: PCE* (8:30am), Fed Chair Powell Speaks* (11:30am)
Monday 4/1: ISM Manufacturing
Tuesday 4/2: Job Openings, Fed Presidents Speak
Wednesday 4/3: ADP Employment, ISM Services

More to explore

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