The bond market--which dictates interest rates--had a generally favorable response to yesterday's update from the Federal Reserve.  While the Fed didn't cut rates, and while they're increasingly acknowledging that rate cuts are moving farther into the future, they still think data will evolve in a way that results in the next move being a cut as opposed to a hike. Positive momentum continued today, in spite of several economic reports that argued the opposite case.  Had these reports been top tier market movers, the counterintuitive victory would have been highly unlikely. Friday is a different sort of day in terms of economic data.  The big monthly jobs report is in a league of its own when it comes to labor market data, and while it may not currently be the most important report on any given month, it's a consistent 2nd place behind CPI.  After the jobs report, we'll get a strong 2nd tier contender in the form of ISM's service sector index.   These two reports have the power to accelerate or reverse the friendly tone seen in rates over the past 2 days.  As for today, the average lender inched just barely to the lowest levels since April 12th.  This wasn't the case in the first half of the day, but as bonds improved, many lenders were able to issue mid-day reprices. 

Wednesday brought a full schedule of events and data for the bond market to digest and bonds dictate day to day changes in mortgage rates.  The morning's data was perfectly palatable, resulting in modest strength heading into the afternoon's Fed announcement. Contrary to impression given by many news headlines on Fed day, there is rarely any significance to the Fed's actual decision to hike/cut/hold steady at any given meeting by the time the meeting actually happens.  Markets will have long since priced in the likely outcome based on economic data and Fed policy transparency. In other words, it was a surprise to no one that the Fed held rates steady at this meeting.  Bond traders tuned in for other reasons--mainly to hear what Powell had to say at the 2:30pm ET press conference. There were a few ways Powell could have framed the recent set-backs seen in inflation data.  Some analysts thought he might say more to entertain the possibility of rate hike instead of a rate cut.  Powell (and, indeed, the Fed announcement itself) definitely acknowledged that inflation data meant a delay for the Fed's next move, but in the press conference, Powell reiterated that the next move was much more likely to be a cut, based on the trajectory of the data.   Bonds improved and many mortgage lenders were able to re-issue slightly lower rates compared to the morning levels.  The average 30yr fixed rate is still elevated by 2024's standards, but nicely lower compared to yesterday's latest levels.

A mortgage rate is highly subjective and can vary for a variety of reasons.  A news story that provides an outright level like 7.5% requires context and qualification.  Some online advertisements (especially among builders) could still be showing rates in the high 6's.  Some borrowers will be seeing rates of 7.625 or higher.  Loans with less than 25% down will have higher and higher costs, either in terms of upfront closing costs or the rate itself.  Investment properties incur significant extra costs as do lower credit scores (you start getting hit for anything under 780 in many cases these days).   These are just a few considerations to illustrate the point that a 30yr fixed rate isn't necessarily apples to apples. Fortunately, we can control for most of the variables by only ever looking at the same scenario, free from most of the subjective adjustments.  We can also control for the practice of advertising lower rates by quoting them with implied discount points (extra upfront cost that goes toward "buying down" the prevailing rate). That's one of the reasons the MND index is higher than Freddie Mac's weekly survey. All that to say, 7.5%+ might not be the exact rate you see today, but after adjusting for everything we can control, that's the most prevalently quoted top tier conventional 30yr fixed rate again today.  It's the 3rd time we've seen 7.5 in the past 2 weeks. Today's increase followed the release or the Employment Cost Index--one of the economic reports the Fed watches closely in determining rate policy.  In not so many words, it suggested higher momentum in price pressures than previously expected.  This wasn't necessarily out of line with any of the other recent inflation-related reports, but the confirmation was worth a bit of extra weakness in rates nonetheless.

Mortgage rates didn't change much at all over the weekend with the average lender still in the highest territory since November.  The average conventional 30yr fixed rate is just under 7.5% for top tier scenarios. Things could end up changing quite a bit by the end of this week owing to a slew of important events and economic reports.  The sneak preview of one of those events took place this afternoon as the U.S. Treasury released borrowing estimates for the 2nd quarter.   Why would this matter?   Rates are driven by bonds and U.S. Treasuries are the bonds that set the tone for all other bonds/rates in the U.S.  Bonds can be influenced by a number of factors, but supply and demand always matter to any financial security.  The Treasury department directly comments on the supply side of that equation in these announcements.  When the number is bigger than the market expects, it puts upward pressure on rates, all other things being equal. Today's number was slightly bigger, but the market did a good job of taking that in stride.  The rest of the week's calendar is even more likely to cause volatility--especially on Wednesday and Friday.  As always, volatility can either be good or bad for rates.

As 2024 has progressed, economic data--especially inflation data--have made it increasingly clear that rates will not be coming down nearly as soon as the Fed (and the market) expected. Rates are driven by multiple factors.  At present, inflation is chief among those, followed by the economy.  In general, higher inflation and economic strength coincide with higher rates.   Inflation and economic data evolved in such a way as to offer some light at the end of the high rate tunnel at the end of 2023.  Even the Fed acknowledged the shift by lowering its 2024 rate projection by half a percent in December.   But 2024 has proven to be a frustrating year so far for everyone who'd been hoping that inflation and rates were finally on the way back down.  We weren't necessarily expecting to see any new fireworks this week, but we got them anyway. The trouble began on Thursday morning with the release of the quarterly GDP data.  One component of GDP is "personal consumption expenditures" (PCE).  One manifestation of the PCE data is a price index which in turn has a variation that excludes food and energy to give us the Core PCE Price Index. Core PCE is akin to Core CPI and it happens to be preferred by the Fed when it comes to tracking the 2% inflation target.  There are several different Core PCE measurement methods, which can make things fairly confusing on weeks when the data is released.  They include: