In A Nutshell: Mortgage rates have shot up as a number of economic concerns come together in a perfect storm. There’s little on the horizon to offer relief without addressing the fundamental drivers behind the market’s expectation that the Fed may hike rates further, undoing most of the rate cuts from the past two years.
Last Week’s Highlights
The little-known PMI surveys coming in higher than expected last week seemingly kicked off a 20 bps climb in the 10-year Treasury yield. These surveys are hardly ever taken that seriously, and this print was likely overstated because of biases in the responses stemming from higher price levels. But that’s beside the point. What matters is this: it was one more data point pointing to a resilient economy that may be growing as much as 5% annually in the third quarter. Combined with greater volatility in oil prices and a Fed that grows more hawkish by the day, that led markets to expect several more rate hikes. Indeed, futures markets are now pricing in hikes that would take the Fed Funds Rate to 5% by the end of next year, only 50 bps below the peak we reached in the 2022-to-2023 hiking cycle. That’s 75 bps more in hikes than we expected a month ago.
Upcoming Attractions
This is a big week for economic data, with both PCE and a series of reports on the job market. PCE, the Fed’s yardstick for inflation, is normally a fairly sleep event because it’s predictable based on the earlier CPI and PPI data. The August release, coming on Wednesday, includes a methodology change for the software and accessories, portfolio management services, and legal services categories, which, together, should bring measured annual core PCE down by 15-20 bps. It’ll look like inflation dropped all of a sudden, but this should have no impact on how the Fed views its progress toward inflation because these methodology changes are understood well in advance.
This week’s jobs data includes Tuesday’s report on job openings and Friday’s official jobs report. August job openings are expected to remain largely unchanged. Forecasters are expecting the unemployment rate to remain at 4.1%, and for about 80,000 jobs to have been added in August. Coupled with the current very low levels of unemployment insurance claims, that would mean the labor market is humming along.
And finally, Fed officials will be very active this week with lots of speaking engagements on the calendar. Some of the ones to highlight are Vice Chair Michelle Bowman (Monday, Tuesday, Thursday), New York Fed President John Williams (Tuesday and Thursday), Fed Governor Christopher Waller (Tuesday and Thursday), Minneapolis Fed President Neel Kashkari (Wednesday), and Dallas Fed President Lorie Logan (Thursday and Friday). Given the rapid–and probably unexpected to the Fed–rise in long-term rates last week, it’ll be interesting to see if they try to reign that in.
Redfin and Rocket’s Most Recent Housing Reports
