Mortgage bond prices finished the week lower which put upward pressure on rates. The Fed raised rates 75 basis points and the financial markets remained very volatile. The DOW fell below 30,000 at one point. Traders feared the rate increases needed to stem inflation may force the economy into a recession. Oil prices fell off the highs from the prior week but remained choppy. The data was mixed. Producer prices rose 0.8% vs 1%. The core rose 0.5% vs 0.7%. Housing starts were 1549K vs 1700K. Jobless claims were 229K vs 222K. The Philadelphia Fed index was down 3.3 vs up 3. Industrial production rose 0.2% vs 0.7% while capacity use was 79% vs 79.2%. Mortgage interest rates finished the week worse by approximately 3/8 of as discount point.
|Economic Indicator||Release Date & Time||Consensus Estimate||Analysis|
|Juneteenth||Monday, June 20||Important. No trading Monday. Shortened trading week may lead to volatility when trading resumes Tuesday.|
|Existing Home Sales||Tuesday, June 21,
10:00 am, et
|5.55M||Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.|
|Weekly Jobless Claims||Thursday, June 23,
8:30 am, et
|212K||Important. An indication of employment. Higher claims may result in lower rates.|
|New Home Sales||Friday, June 25,
10:00 am, et
|580K||Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.|
|U of Michigan Consumer Sentiment||Friday, June 25,
10:00 am, et
|57||Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.|
The Federal Open Market Committee member’s projections for the future reported a PCE inflation range of 4.8% to 6.2% in 2022, 2.3% to 4.0% in 2023, and 2.0% to 3.0% in 2024. The long-term goal remains an inflation goal of 2.0%. The projected Fed funds rate is 3.1% to 3.9% in 2022, 2.9% to 4.4% in 2023, and 2.1% to 4.1% in 2024. Fed Chair Powell seemed confident in his press conference that they will be able to tackle the challenges ahead and reach these goals. The financial markets are considerably more uncertain of the Fed’s ability to do so with their late moves to combat inflation and wrong forecast regarding inflation being “transitory.”
The challenge the Fed faces is stemming the upward trend of inflation without throwing the economy into recession. Their aggressive 75-basis point hike compared to their verbal guidance of a 50-basis point increase prior to last week’s meeting resulted in considerable stock and bond volatility.
The Fed noted, “The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world, and the future path of the economy can be affected by myriad unforeseen developments and events. Thus, in setting the stance of monetary policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.”
A cautious approach to float/lock decisions is wise in this environment considering the “uncertainty” the Fed details.