MORTGAGE RATES IMPROVE AGAIN

The recent actions by the Federal Reserve (Fed) indicate a significant shift in their approach to monetary policy, particularly in relation to the Federal Funds Rate.

Here's a breakdown of the key points:

1. Stability in the Federal Funds Rate: Since March of the previous year, the Fed has increased the Federal Funds Rate eleven times. However, in their recent meetings, including the latest one, the rate has been maintained at a steady range of 5.25% to 5.5%. This decision to keep the rate unchanged was unanimous and consistent with their previous meetings in September and November.

2. Understanding the Federal Funds Rate: It's important to note that the Federal Funds Rate is distinct from mortgage rates. This rate specifically refers to the interest rate for overnight borrowing among banks. The aggressive hikes in this rate throughout the past cycle were part of the Fed's strategy to slow down the economy and address the high inflation experienced last year.

3. Fed Chair Jerome Powell’s Remarks: In his press conference, Powell acknowledged the positive development of inflation easing from its previous highs. However, he also cautioned that the progress in controlling inflation isn't guaranteed to continue without further measures.

4. Future Prospects and Rate Cuts: While additional rate hikes haven't been completely ruled out, especially if needed to control inflation, the recent meeting suggested that the Fed might be leaning towards rate cuts in the coming year. This expectation is supported by the “dot plot,” which is a chart showing Fed members' forecasts for policy rates. According to this, 15 out of 19 members anticipate rate cuts ranging between 50 and 100 basis points over the next year.

In summary, the Fed's recent decisions and forecasts indicate a cautious but optimistic approach towards managing inflation and economic growth, with a potential inclination towards reducing rates in the near future. Powell recognized the easing of inflation but warned that the fight against inflation is not over and requires ongoing efforts. This reflects their response to the current economic conditions and the progress made in controlling inflation.

How’s the economy doing?

The November Consumer Price Index (CPI) indicated a slight increase in inflation by 0.1% compared to October, with an annual decrease from 3.2% to 3.1%. Core CPI, excluding food and energy, rose by 0.3% monthly, remaining at an annual 4%. Energy price declines helped offset rising costs in sectors like used cars and health insurance. Inflation has notably decreased from its peak last year, with the headline CPI at 3.1% and core CPI at 4%.

Similarly, the Producer Price Index (PPI) for November was flat, with an annual decrease from 1.2% to 0.9%, indicating a cooling in wholesale inflation. Core PPI also remained stable for the month and dropped annually from 2.3% to 2%.

Retail Sales in November rose by 0.3%, surpassing expectations and showing a 4.1% increase compared to the same month in 2022. Lower gas prices led to reduced sales at gas stations but boosted spending in other areas, such as online shopping, contributing to a strong start to the holiday shopping season amid easing inflation.

Regarding employment, initial jobless claims dropped to a two-month low, with 202,000 new filings, while continuing claims increased slightly. The low number of Initial Jobless Claims suggests that layoffs remain muted as employers are trying to hold on to workers. Yet, Continuing Claims reached their second highest level since November 2021. This figure has been rising sharply and points to a weakening labor market, where it’s much harder for people to find employment once they are let go.

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Article Written and Provided by Padi Goodspeed SVP of Cross Country Mortgage