![Mortgage Investors Group in [Dynamic1]](../assets/images/mortgage-investors-group.svg)
Market Comment
Mortgage bond prices finished the week sharply lower which put significant upward pressure on rates. The selling trend continued through most of the week with a slight reprieve Thursday afternoon and Friday. Most of the worsening occurred around the Fed meeting. They cut rates 25 basis points as expected but revised projections for fewer rate cuts next year. The data was mixed. Industrial production fell 0.1% vs the expected 0.3% increase. Capacity use was 76.8% vs 77.3%. NAHB housing was 46 vs 47. Housing starts were 1.289M vs 1.34M. Q3 Gross Domestic Product rose 3.1% vs 2.8%. Weekly jobless claims were 220K vs 230K. Core PCE inflation, the Fed’s preferred inflation gauge, rose 0.1% vs 0.2%. Mortgage interest rates finished the week worse by approximately 3/4 of a discount point.
LOOKING AHEAD
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
|---|---|---|---|
| Consumer Confidence | Monday, Dec. 23, 10:00 am, et | 113 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
| Treasury Auctions Begin | Monday, Dec. 23, 1:15 pm, et | None | Important. 2Y Notes on Monday, 5Y Notes on Tuesday, and 7Y Notes on Thursday. |
| Durable Goods Orders | Tuesday, Dec. 24, 8:30am, et | Down 0.4% | Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates. |
| New Home Sales | Tuesday, Dec. 24, 10:00 am, et | 650K | Important. An indication of economic strength and credit demand. Weakness may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Dec. 26, 8:30 am, et | 218K | Important. An indication of employment. Higher claims may result in lower rates. |
Fed Projections
The Federal Reserve released their “Summary of Economic Projections” last week. The report indicated, “In conjunction with the Federal Open Market Committee (FOMC) meeting held on December 17–18, 2024, meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2024 to 2027 and over the longer run. Each participant’s projections were based on information available at the time of the meeting, together with her or his assessment of appropriate monetary policy—including a path for the federal funds rate and its longer-run value—and assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant’s assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. “Appropriate monetary policy” is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability.”
The median estimates for 2025 GDP are 2.1%. Members expect unemployment to be 4.3%. Core PCE inflation is anticipated to be 2.5%. The projected appropriate policy path for the Federal funds rate is 3.9%. This was revised from their September estimate of 3.4%. The current target range for the Federal funds rate is 4.50% to 4.75%. The Fed noted, “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.”
Mortgage interest rates should eventually follow the downward path of the Fed funds rate if they are successful at putting downward pressure on inflation throughout next year. However, a cautious approach is necessary in the short term as investors adjust to the Fed’s longer expected timeline in getting inflation down to their 2% goal.
