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Market Update

From the Desk of Jason Obradovich, Chief Investment Officer

Unexpected Rise in Treasury Rates


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

2024 has not been the year everyone was expecting so far. Treasury rates are actually up nearing 90bps since the end of 2023.  Taking a look at the graph on your screen, you can see that the 3 Year Treasury is up 87bps since January 12th

The prospects of the Federal Reserve lowering rates 3 times or more has been basically eliminated as a possibility with inflation still stubbornly above the Fed’s target. Last week headline CPI was up 3.5% year-over-year-old vs the market’s expectation of 3.4% and more importantly, core CPI was up 3.8% vs the market’s expectation of 3.7%. 

It may be only a 0.1% difference, but it was a reminder to the market that inflation is very stubborn and the Fed doesn’t need to move quickly thanks to a pretty resilient economy and job market.

Speaking of inflation, next week is the more important PCE for March, which may confirm the stubbornness of inflation and likelihood that the Fed will keep rates higher for longer. As of today, the market is only pricing in 1.5 Fed moves this year vs the original three that the FOMC had projected. 

Is the market overreacting to the CPI report or will inflation continue to bounce around these levels and give the Fed sufficient ammunition to keep rates higher for longer? We will likely find out next Thursday when PCE comes out.

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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