federal Reserve Chairman Jerome Powell maintained a dovish tone during his speech at a press conference Wednesday afternoon — but it wasn’t enough to stop optimism seeping into the markets as mortgage rates fell to near 6%.
Thank you for reading this post, don't forget to subscribe!“Inflation remains well above our long-term target of 2% in the 12 months ending December: overall PCE prices rose 5%; Excluding the volatile food and energy categories, prices rose 4.4%, Powell told reporters.
“While recent developments are encouraging, we need much more evidence to be confident that inflation is on a sustained downward path,” he added.
According to Powell, Fed officials have decided to move to a slower pace of rate hikes in order to better assess the progress of the economy. on wednesday Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points to a 4.50%-4.75% range. However, the Committee also estimates that an ongoing increase in the target range would be appropriate to bring inflation back to 2%.
However, all markets have heard is that a deflationary process is in progress – or, in other words, that the growth of inflation is slowing. When the closing bell rang on Wednesday, the S&P 500 was up 1.05% and the tech-heavy Nasdaq was up 2% from its previous close. The yield curve also slid, with the 10-year Treasury note down 13 basis points to 3.39%.
In turn, mortgage rates began a free fall. newest Freddie Mac The index measured the 30-year fixed-rate mortgage at 6.09% on Thursday, down four basis points from last week. the rate was even lower mortgage news daily, at 6.04% on Thursday, down 13 basis points from its previous close.
“Mortgage rates eased again with the 30-year fixed rate nearly a full point since November, when it stood at just over 7%,” Sam Khater, chief economist at Freddie Mac, said in a statement.
“According to Freddie Mac research, a 100 basis point reduction in mortgage rates through November could allow more than 3 million mortgage-ready consumers to qualify and take out loans of $400,000, which is the median home value,” he said. Told.
Is the market overreacting?
According to lead analyst Logan Mohtashmi, the bond market clearly disagrees with Powell’s aggressive talk. housing wire,
“The market is right, as inflation growth is falling, and core PCE looks like it will be under 3% control by the end of the year,” Mohtashmi said. “Powell and the Fed have been talking tough for months now, but inflation growth is falling, even as the labor market remains stable.”
Mohtashmi expects the spread between the 10-year Treasury note and the 30-year fixed-rate mortgage to improve even further, and mortgage rates will soon drop to the 5% level.
On Goldman SachsThe February FOMC meeting sent a message that the deflationary process is now underway, the team of analysts said.
However, there is still more work to do as the committee has left unchanged the sentence in its statement that says “ongoing” rate hikes would be appropriate, “a mildly odd surprise given our expectation that it would reduce this language.” Will do,” the analysts wrote.
The Goldman Sachs team forecasts another 25 basis points of hikes in March and May. According to Sachs, “the FOMC aims to avoid a recession but keep growth below trend to further soften labor market conditions, consistent with our forecast.”
