Interest rates remained largely unchanged from last week, staying elevated compared to the lows we saw back in September. Let’s take a closer look at what went down and what’s coming up.
“Money, money, money, money (money)” For the Love of Money – The O’Jays.
Consumer Inflation
The Consumer Price Index (CPI) numbers are in, and both the headline figure (which includes food and energy) and the core reading (which excludes them) came in as expected. The Core CPI is still cruising at a 3.3% annual rate—above the historical 2% comfort zone.
Looking forward, the market is keeping an eye on rent and shelter costs, which make up nearly 65% of the Core CPI. With more apartments coming on the market, there’s hope that rents will drop and help cool inflation further. So far, no alarming surprises from the report—and that had traders breathing a little easier.
Government Efficiency
President-elect Trump announced Elon Musk and Vivek Ramaswamy will lead a new Department of Government Efficiency. The goal? To streamline government spending and programs. This could be a big deal for the mortgage and housing markets: If they cut wasteful spending, balance the budget, and start chipping away at the debt, the bond market is likely to react positively. Of course, it can go the other way, too. Right now, one of the big hurdles to lower mortgage rates is our runaway debt. Just last week, Fed Chair Jerome Powell warned it poses a real threat to the economy.
Fed Rate Cut Seen in December
With just under six weeks until the next Fed meeting, there’s an 80% chance of a 0.25% rate cut, driven higher by the in-line CPI numbers. What’s going to be key is watching how long-term rates react. The Fed has cut rates multiple times already, but long-term rates stubbornly continue to climb.
Oil Lower
Good news for consumers and the markets: oil prices have dipped. This is partly because China’s economic slowdown has reduced expected demand, plus there’s speculation that the U.S. will keep increasing its supply. If oil prices keep sliding, it could create some disinflationary relief—good news for home loan rates.
Fed Speak
Fed officials had a lot to say about the economy and interest rates, and the overall picture remains mixed. Most officials agree on taking a cautious and measured approach to future rate cuts, especially with the uncertainty of new fiscal policies that could come with a new President and Congress.
Bottom line: Interest rates are trying to find their footing after the jump we saw in September. With a new administration still in the wings, expect some volatility in bonds and rates as we wait for clearer policy direction.
Looking Ahead
Next week looks a bit quieter on the economic news front, with moderate-impact reports on the docket. However, keep an eye out for any Fed commentary and updates on fiscal policy plans from the incoming administration, as those could sway markets.
Economic Calendar
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 the trend of lower prices and higher rates remains intact.
Chart: Fannie Mae Mortgage Bond (Friday November 15, 2024)
Economic Calendar for the Week of November 18 – 22
