For the week of December 16, 2024 — Vol. 22, Issue 50

A Look Into the Markets 

This past week, interest rates ticked slightly higher as inflation remains sticky. Let’s discuss what happened as we prepare for the big Fed meeting next week.

“Can you take me higher to a place with golden streets?” Higher by Creed.

Prices Stay High

One part of the Fed’s dual mandate is to maintain price stability, which means ensuring inflation returns to its current target of 2.00%. On Wednesday, the Consumer Price Index (CPI), a measure of inflation, showed that prices haven’t decreased further.

The more closely watched Core CPI, which excludes food and energy, came in at 0.3% for November and 3.3% annually, remaining unchanged from October and elevated from the Fed’s target.

The potential good news going forward is that rents, which make up nearly two-thirds of total Core inflation, showed the lowest monthly increase in over two years.

If this trend of lower rents continues, inflation will start easing toward the Fed’s desired target.

The Producer Price Index, a measure of inflation at the wholesale or producer level, showed a surprising increase in prices. The concern here is that these higher prices will be passed down to consumers in the months ahead.

Small Business Optimism Pops

Small businesses, which create a large portion of our private jobs, have expressed new optimism in a recent survey. The optimism index jumped several points and rose above its 50-year average for the first time in three years.

This is a very positive sign for housing going forward because if small businesses can expand and hire, it will help fuel housing activity.

Fed Rate Cut Coming…But

The CPI reading was the last important number before next week’s Fed meeting. Now that the report met expectations, markets are fully expecting a 0.25% rate cut next Wednesday.

However, there are reports that say the Fed is likely to be more “measured” with rate cuts going forward as inflation remains sticky and fiscal policy remains uncertain.

4.20%

The 10-year Note, which ebbs and flows with mortgage rates, has been battling yield support at 4.20%. If the yield can push convincingly beneath this important marker, rates can improve further. The opposite is true.

Bottom Line: Rates have improved in the past few weeks but are now stalling as inflation remains sticky, and the outlook for more rate cuts remains uncertain.

Economic Calendar

The focus next week will be on the Federal Reserve. On Wednesday, they are expected to lower interest rates and publish their Summary of Economic Projections, which include predictions for economic growth, unemployment, inflation, and future interest rates.

By next Friday, the Core Personal Consumption Expenditure (PCE) Index, the Fed’s preferred gauge of inflation, is expected to be reported, likely showing a 2.9% increase over the past year, which remains significantly above the Fed’s 2% target.

Chart: Fannie Mae 5.50 Mortgage Bond (Friday December 13, 2024)


Looking Ahead

Mortgage bond prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices move higher, rates decline, and vice versa.

If you look at the right side of the chart, you can see how prices have backed away from $100.50, the best levels since October. Next week’s Fed meeting may determine whether prices continue higher and rates can recapture the recent losses.

Economic Calendar for the Week of December 16-20

The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.

As your mortgage professional, I am committed to keeping you updated on the economic events that impact interest rates and how they may affect you.