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Jason Obradovich - Chief Investment Officer

Housing Market News & Updates

Translating the complexity of the markets into a concise and easy to digest format. Watch videos, read blogs, and view key data on short and medium term trends impacting interest rates, so you can make the right decision for your situation.

Latest Market Update

Inflation is Sticky

Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what’s happening with the Capital Markets.

Another month and another release of inflation data. Yesterday was the highly anticipated CPI report. Is inflation still running high or have the FOMC moves over the past year finally pushed inflation downwards?

Well yesterday we got some bad news and a little bit of good news. Inflation is still running well above the Fed’s target and on a year-over-year basis is still running at 5.5% when you exclude volatile food and energy prices. In fact, if you look at the chart on your screen you will see that annual inflation has come down from its peak in September, but the FOMC still has a long way to go to get it down to 3% or lower.

Just to summarize, the Fed has been raising interest rates since March of last year and we are now looking at a Fed funds rate that went from 0-0.25% to where it is now at 5-5.25%. Those increases have certainly put a cramp on the economy and it’s slowly working its way into the components of CPI. We are starting to see relief in airfare, hotel stays, new cars, and rent. But the job market remains very strong with unemployment at record lows, goods prices are still very high, and energy prices still remain elevated.

Inflation has spread throughout the entire economy and when it comes down it’s very uneven, and for certain sectors, returns to normal very slowly. We will have to continue to be patient, but it does appear that we are on the right track for it to come down over time.

Yesterday’s report seems to reinforce the belief that the FOMC will not raise rates in June and has reached their terminal rate. The market is pricing in a drop in the Fed Funds rate in September, November, and December. That might be an aggressive timeline given recent comments from the Fed, but clearly the market believes the economy is headed for a recession much sooner than the Fed. So far, the Fed has been right about the stickiness of inflation and the need to keep rates higher for longer.

That’s it everyone from the capital markets desk this week. Thank you all for watching and have a great day.

Previous Market Update

The Top Of Fed Funds Mountain

Hello everyone.  Welcome back to the Mortgage Rundown.  Today we are going to talk about what’s happening with the Capital Markets.

Well, higher interest rates are still the name of the game as the FOMC continues to battle stubbornly high inflation.  The latest CPI and PPI figures have shown that inflation is coming down but very slowly. 

Mortgage rates have now been above 6% for over 7 months and it’s not likely they will drop anytime soon.  That’s caused real estate inventory to be very tight as buyers do not want to bear the cost of higher interest rates by moving.

The Federal Reserve is largely anticipated to raise the benchmark rate 25bps at the next meeting on May 3rd and the belief is that this will end the Fed’s campaign of raising rates to bring down inflation.  How soon will inflation come down and what will happen after May’s meeting is anyone’s guess, but rest assured there is a battle brewing.

After the FOMC meeting next week, it’s largely expected the market will find a balance of risk with inflation on one side and the economy on the other.  Remember, if the Fed pauses after the May meeting, they are acknowledging that they likely won’t need to do more to combat inflation.  That doesn’t mean that inflation is defeated, it just means they might not increase rates anymore to push it lower.  And by that same pause they are simultaneously acknowledging they are equally concerned about what higher rates are doing to the economy.

That pause is telling the market that the Fed could move either direction; and with that balance of fear, combined with how much the Fed has raised rates over the past year plus, should mean we are in store for more market volatility ahead.

Don’t also forget that the yield curve is inverted, the market believes the economy is near a recession and once the Fed pauses, short-term and long-term rates are going to move around fairly dramatically as the yield curve reshapes itself towards the new Fed path on rates.

That’s it everyone from the capital markets desk this week.  Thank you all for watching and have a great day.


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