Mortgage Market Update

Mortgage Market Update

Mortgage Market Update

Market Overview

As of 8:40 AM 1/31/24, mortgage prices have improved by six basis points compared to the market close yesterday.

Stock Futures

Stock futures are showing mixed performance this morning, likely influenced by slower job growth numbers being reported.

Treasury Prices

Treasury prices have strengthened this morning, with the 10-year yield currently trading at 4.02%.

Economic News

In today's economic news:

  • The ADP employment report indicates that the U.S. added 107,000 jobs in January, which fell short of analyst estimates.
  • MBA mortgage applications were down 7.2% last week, with the average 30-year fixed-rate mortgage at 6.78%.

Fed Rate Decision

Federal Reserve's Focus on Economic Stability

Federal Reserve Chair Jerome Powell emphasized that the Fed's primary focus is not on economic growth but on ensuring maximum employment and maintaining price stability. He highlighted that their primary concern is inflation and employment trends.

Inflation on a Sustainable Path

Powell pointed out that the Fed is closely monitoring inflation trends and is looking for signs that inflation is on a sustainable downward path. He indicated that the pace of rate cuts would be influenced by upcoming inflation data. Strong inflation figures might suggest a slower pace of rate cuts, while favorable inflation numbers could lead to faster cuts.

Consumer Confidence and Rising Prices

Acknowledging that consumer confidence has been slow to improve despite low unemployment rates, Powell suggested that elevated consumer prices might be a contributing factor. He noted that prices increased by more than 2% annually for a couple of years, impacting people's sentiment.

March Rate Cut Unlikely

Powell expressed skepticism about the possibility of a rate cut at the upcoming March meeting. He mentioned that based on the current information, it seems unlikely that the committee will have enough confidence to make such a decision by March.

Keeping Options Open

Highlighting the ongoing uncertainties in the economy, Powell emphasized that the Fed is keeping its options open. While the past six months have seen positive economic data, potential risks could reaccelerate inflation, warranting a response.

Factors Contributing to Disinflation

Apart from monetary policy, Powell attributed the current disinflationary trend to the healing of supply chains and improvements in the labor market. He noted that these factors are different from previous economic cycles and have played a significant role in reducing inflation.

Progress and Uncertainty

While acknowledging the progress made in the economy, Powell refrained from declaring a "soft landing" definitively. He mentioned that there is still more work to be done and that the path forward remains uncertain.

Rate Cut Not Currently on the Table

Powell clarified that the Federal Open Market Committee (FOMC) has not yet considered cutting rates, and there has been no proposal to do so. Rate cuts are not actively being considered at this point.

Need for Evidence of Easing Inflation

The Fed's decision to cut rates hinges on the need for more evidence that inflation is easing. Powell emphasized that the Fed needs confirmation that inflation is moving sustainably toward the 2% target.

Looking for Continued Positive Data

Despite a series of positive economic reports, Powell stressed that the Fed is looking for sustained positive data, particularly regarding inflation. He emphasized that they are seeking more evidence of a sustainable path toward their inflation goal.

Policy Rate's Peak for Tightening Cycle

Powell suggested that the policy rate may have reached its peak for this tightening cycle but added that there might not be immediate rate cuts on the horizon.

Fed's Uncertain Path Forward

Powell acknowledged the progress made by the U.S. economy but noted that there is still uncertainty. The Fed remains committed to returning inflation to the 2% goal but remains cautious.

Market Expectations and Policymaking

While market expectations for rate cuts are high, analysts and experts have varying views on the timing and necessity of rate cuts. Powell's statements have influenced market sentiment and expectations regarding future rate policy.

Conclusion

The focus remains on the Federal Reserve's post-meeting statement, which will provide crucial insights into the central bank's stance on interest rates and inflation. The Fed's decisions will continue to shape market dynamics and economic expectations.

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