27
Feb
Market Comment
Mortgage bond prices finished the week lower which put upward pressure on rates. Trading went back and forth but ended on a sour note in response to higher-than-expected inflation readings and some surprises from Fed officials. The Fed minutes indicated, “A few participants stated that they favored raising the target range for the federal funds rate 50 basis points at this meeting or that they could have supported raising the target by that amount.” Core PCE rose 0.6% vs 0.4%. The rest of the data was mixed but generally not rate friendly. Weekly jobless claims were 192K vs 200K. New home sales rose 670K vs 620K. Consumer sentiment was 67.0 to 66.6. Mortgage interest rates finished the week worse by approximately 3/8 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Durable Goods Orders | Monday, Feb. 27, 8:30 am, et |
Up 5.5% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| Trade Data | Tuesday, Feb. 28, 8:30 am, et |
$90.3B deficit | Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates. |
| FHFA House Price Index | Tuesday, Feb. 28, 10:00 am, et |
Down 0.1% | Moderately Important. A measure of single-family house prices. Weakness may lead to lower rates. |
| Consumer Confidence | Tuesday, Feb. 28, 10:00 am, et |
1071.1 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| ISM Index | Wednesday, March 1, 10:00 am, et |
51.4 | Important. A measure of manufacturer sentiment. Weakness may lead to lower mortgage rates. |
| Construction Spending | Thursday, March 2, 10:00 am, et |
Down 0.4% | Low importance. An indication of economic strength. Significant weakness may lead to lower rates. |
| Revised Q4 Productivity | Thursday, March 2, 8:30 am, et |
Up 1.4% | Important. A measure of output per hour. Improvement may lead to lower mortgage rates. |
| Weekly Jobless Claims | Thursday, March 2, 8:30 am, et |
192K | Important. An indication of employment. Higher claims may result in lower rates. |
R-Star
The Federal Reserve Bank of New York defines r-star as “the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable.” The R references inflation and the star signifies the “long-term” in economic equations. Basically, it is the real neutral rate of interest that keeps the economy balanced in the years ahead. There are several models that try to determine R-star and they vary. The NY Fed stopped posting their R-star data November 2020 due to “extraordinary volatility in GDP related to the COVID-19 pandemic.” At that time their r-star rate was 0.03% for the United States. Since then, the Richmond Fed has released a model that some reference. Their recent data showed R-star levels around 1.3%. That would make the Fed’s general interest rate target that most people reference 3.3%. The Fed is expected to publish updated projections in March, but some believe they will hold back any R-star estimates in order to keep markets calm.
Now is a good time to take advantage of rates at these levels to avoid exposure to volatility in the weeks ahead.
