Fed Holds Rates, Inflation Eases, and Job Market Challenges Persist

Welcome to our comprehensive review of the housing market and key economic indicators for the week of June 12, 2023. In this update, we analyze the latest headlines and data to provide you with valuable insights into the real estate landscape and the broader economy. Last week, the Federal Reserve decided to keep the benchmark Federal Funds Rate unchanged, while inflation showed signs of easing and job market challenges persisted. Let's dive into the details:

Fed Skips Hike to Fed Funds Rate

After a series of aggressive rate hikes, the Federal Reserve chose to leave the benchmark Federal Funds Rate unchanged at a range of 5% to 5.25%. The decision came after ten rate hikes since March of the previous year. The Fed Funds Rate, which affects overnight borrowing for banks, is distinct from mortgage rates. The Fed's decision reflects their intention to assess incoming data and their commitment to achieving their 2% inflation target.

The bottom line: The Fed kept the Fed Funds Rate unchanged to give themselves more time to evaluate the economic landscape. Fed Chair Jerome Powell emphasized the Fed's commitment to returning inflation to their 2% target over time. The upcoming labor and inflation data will play a crucial role in the Fed's decision-making process for the next meeting.

Annual Consumer Inflation Hits 2-Year Low

Consumer inflation, as measured by the Consumer Price Index (CPI), rose 0.1% in May, slightly below expectations. On an annual basis, CPI significantly declined from 4.9% in April to 4%, reaching its lowest level since April 2021. Core CPI, which excludes volatile food and energy prices, increased by 0.4%, while the annual reading declined from 5.5% to 5.3%.

Stubbornly high costs for shelter and used cars were key contributors to inflation last month. However, real-time data indicates a decline in shelter costs, which should further alleviate inflationary pressures once fully reflected in future reports.

The bottom line: Inflation has experienced a significant decline from its peak, signaling a welcome trend. Lower inflation not only implies reduced costs for goods and services but also has the potential to positively impact Mortgage Bonds and mortgage rates over time.

Another Big Decline in Annual Wholesale Inflation

The Producer Price Index (PPI), which measures inflation on the wholesale level, decreased by 0.3% in May, falling below expectations. On an annual basis, PPI saw a sharp decline from 2.3% to 1.1%, marking the lowest level since December 2020. Core PPI, which excludes volatile food and energy prices, rose by 0.2%, while the year-over-year reading dropped from 3.2% to 2.8%.

The bottom line: Annual wholesale inflation readings continue to move lower, demonstrating significant improvement. With a substantial decline in wholesale inflation, there is potential for reduced inflationary pressures throughout the economy.

Job Search Challenges Remain

Initial Jobless Claims remained elevated in the latest week, as 262,000 individuals filed for unemployment benefits for the first time. This matched the number of filers reported in the previous week, which was slightly revised higher. Additionally, 1.775 million Continuing Claims were reported, reflecting the number of people still receiving benefits after their initial claim is filed.

There is a clear upward trend in unemployment claims, with Initial Claims remaining above 200,000 each week since February. The latest reading represents the highest level seen since November 2021. The 4-week average of Initial Claims, which smooths out weekly fluctuations, rose to its highest level since August of last year at 247,000.

The bottom line: The latest jobless claims report indicates ongoing challenges in the job market. With unemployment claims remaining elevated and the upward trend continuing, it is evident that many individuals are still facing difficulties in finding new employment opportunities. This real-time report is crucial for the Fed, as they closely monitor employment data to gauge the strength of the labor market and its impact on the overall economy. Additionally, while retail sales saw unexpected growth, the rising layoffs may limit consumer spending in the coming months.

Outlook for This Week's Mortgage Rates

As we look ahead to the upcoming week, it's important to consider the potential direction of mortgage rates. While several factors influence mortgage rate movements, including economic indicators and market conditions, here is a brief outlook for this week's mortgage rates:

Expectations for mortgage rates: Mortgage rates are currently at historically low levels. However, given the recent economic developments, there is a possibility of slight upward pressure on rates in the near term.

Key factors to monitor: Keep an eye on the upcoming labor market data, including the monthly employment report, which provides insights into job growth and the unemployment rate. Additionally, inflation figures, such as the Consumer Price Index (CPI), can influence mortgage rates.
Market conditions and investor sentiment: Mortgage rates are influenced by market conditions and investor sentiment. Any significant changes in market dynamics or investor confidence can impact mortgage rates.
Consult with mortgage professionals: To get the most accurate and up-to-date information on mortgage rates, it is advisable to consult with mortgage professionals who can provide personalized guidance based on your specific situation.

For additional information on mortgage rates and to stay updated on the latest developments, you may find the following resources helpful:

Remember, staying informed and working with trusted professionals can help you make informed decisions about your mortgage and real estate plans.