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Market Update

From the Desk of Jason Obradovich, Chief Investment Officer

Interest Rates Rising Again

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

Rates go up and rates go down. Just when it looked like rates were going to start dropping again, they have popped back up over the past couple of weeks. Today the 10yr Treasury is right around 4.6% after getting all the way down to 3.8% at the end of last year. 

So, what gives? After all of this talk about the Fed lowering rates in 2024, why are we seeing rates move higher? The short answer is inflation and the employment market. We are still seeing inflation stubbornly high and not moving very quickly towards the Fed’s target of 2%. 

As far as the jobs market is concerned, the unemployment rate is still below 4% and showing no signs of moving higher. If the Fed’s current policy is so restrictive then why aren’t we seeing inflation coming down and the unemployment rate moving up?

The answer is complex. While there are certain areas of the economy that are showing weaknesses, there are other areas such as housing, transportation and health services that are red hot. There simply is too much stimulus in the economy and that makes the Fed’s job more difficult in slowing it down.  There are now some fears that the Federal Open Market Committee (FOMC) rate isn’t high enough and that’s what is pushing rates up right now.

We do have PCE data coming out tomorrow for April which should give us a great gauge on whether or not inflation is moving in the right direction. If the number does go up from March, then we could see another spike in interest rates. If the month-over-month number does go down materially, then we could see the market breathe a sigh of relief and rates might start falling again.

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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