Market Comment
Mortgage bond prices finished the week sharply lower which put upward pressure on rates. Rates increased throughout most of the week with the largest movements after the Fed meeting Wednesday afternoon. The Fed changed their rate hike forecast from 2024 to possibly a few in 2023. They continued their multi-billion-dollar daily MBS purchases, but the buying did not reverse the heavy selling pressure. Inflation readings were “hotter” than expected. Producer prices rose 0.8% vs the expected 0.6% increase. The core, which excludes volatile food and energy prices, rose 0.7% vs 0.5%. Retail sales fell 1.3% vs the expected 0.8% decline. Housing starts were 1.572M vs 1.63M. Weekly jobless claims were 412K vs the expected 359K. The Philadelphia Fed index was 30.7 vs 27.5. LEI rose 1.3% as expected. Mortgage interest rates finished the week worse by approximately 7/8 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Existing Home Sales | Tuesday, June 22, 10:00 am, et |
5.8M | Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates. |
| 2-year Treasury Note Auction | Tuesday, June 22, 1:15 pm, et |
None | Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates. |
| New Home Sales | Wednesday, June 23, 10:00 am, et |
890K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Durable Goods Orders | Thursday, June 24, 8:30 am, et |
Up 2.1% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| Q1 GDP | Thursday, June 24, 8:30 am, et |
Up 6.4% | Very important. The aggregate measure of US economic production. Weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, June 24, 8:30 am, et |
412K | Important. An indication of employment. Higher claims may result in lower rates. |
| Personal Income and Outlays | Friday, June 25, 8:30 am, et |
Down 2.8%, Up 0.5% |
Important. A measure of consumers’ ability to spend. Weakness may lead to lower mortgage rates. |
| PCE Core Inflation | Friday, June 25, 8:30 am, et |
Up 0.6% | Important. A measure of price increases for all domestic personal consumption. Weaker figure may help rates improve. |
| U of Michigan Consumer Sentiment | Friday, June 25, 10:00 am, et |
86.4 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
The Fed and Inflation
The Federal Reserve is very clear that they are prepared to allow inflation to go above their 2 percent target. They specifically noted last week, “With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer term inflation expectations remain well anchored at 2 percent.”
The Fed remains the dominant force in the mortgage interest rate market. They have not announced a reduction in their billion-dollar-daily MBS purchases so rates can remain favorable. However, there is a risk that mortgage rates will creep higher with ever-increase inflationary pressures. With that in mind, now is a great time to take advantage of the low rates.
