The big news last week was the Fed scaling down their rate hike to a quarter of a point as encouraging inflation data suggests the worst is behind us. However, the good news was short lived as the latest jobs report showed the U.S. economy added more jobs than expected in January, which puts pressure on the Fed to keep rates high this year to prevent a resurgence amidst a strong labor market. Despite this, purchase activity is expected to pick up as the spring home buying season gets underway, and pending sales data through the end of January suggests that closed sales will begin to rise in February.
Fed scales down its rate hike to a quarter point but does not declare victory over inflation yet: The Federal Open Market Committee (FOMC) decided to scale down their latest interest rate hike, pointing out that inflation has eased in recent months. This was the smallest of 8 consecutive rate hikes to the federal funds rate, which now ranges from 4.5%-4.75% - the highest since October 2007. The FOMC also warned however, that while recent developments are encouraging, inflation remains elevated. Most noteworthy was the forward-guidance that said no rate cuts were scheduled if the economy proceeds as currently forecast, so a more significant decline in mortgage rates is unlikely in the next few months.
Stronger than expected jobs gain, gives U.S. economy a push to start the year: The U.S. economy added 517K jobs in January, nearly 3 times more than the consensus expectation and the biggest gain since July 2022. At the same time, the unemployment rate fell to 3.4% - the lowest jobless rate in 53 years. While these are certainly signs of a resilient economy and a strong labor market, it also shows that inflationary pressures persist as hiring continues to expand. Fortunately, the gain in jobs occurred as labor force participation also improved while wage growth moderated, both of which are positive signs the imbalance between labor demand and labor supply has started to ease.
Consumer confidence in the economy continues to waver despite easing inflation: The Conference Board’s Consumer Confidence Index — a closely watched metric gauging attitudes about the current and future strength of the economy — measured 107.1 in January. Confidence slipped from an upwardly revised 109 in December as consumers remain wary of the future of the economy despite inflation slowing. While the assessment of their present situation increased to 150.9 – the highest reading in nine months, expectations about future economic conditions plunged the most in seven months to 77.8. According to the Conference Board, a reading below 80, emphasizes consumers’ fear of recession in the near-term.
Mortgage applications decrease despite rates inching lower: According to Mortgage Bankers Association’s (MBA) weekly mortgage applications survey ending January 27, overall applications activity declined 9.0% from the week prior despite mortgage interest rates trending lower. Mortgage activity had picked up as rates trended lower, but this latest weekly survey shows that demand remains volatile. Rates still remain nearly double what they were a year ago, which has severely diminished affordability. Purchase activity is expected to pick up as the spring homebuying season gets underway, and pending sales data through the end of January suggests that closed sales will begin to rise in February.
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