Weekly Mortgage Rate Update- 02-04-2025

 

Rates held last week without much movement

There was a lot of news to digest but after the dust settled rates didn’t move much from the prior week. Inflation and the Fed meeting went as expected and tariffs have the market uncertain of which direction things will go in the economy.  This week will have a lot of news as well on employment and most certainly the tariff negotiations will remain center stage, leaving us wondering if this will be a week rates are able to break out of the current range or not.   

Fed Meeting confirmed we are in “wait and see” mode

The Fed held rates steady at their January meeting and signaled they were in pause mode.  We were curious what Powell would say about the recent criticism from the president on the Fed’s policies and the impact of Trump’s plans on the economy.  But Powell shut down every question he was asked on the subject.  He said they won’t speculate on future policy and will wait to see how things develop. 

Trump has criticized Fed policy as the reason for inflation in the first place, but he is taking a different tone than in his last administration, he has not called for lower rates from the Fed yet.  Recognizing that inflation must be under control before that happens.  He has said rates will come down based on the things he will do to lower energy costs and other policy actions without help from the Fed.  Bloomberg reported over the weekend that Trump said the Fed made the right call on a pause for rate cuts.  “Holding rates at this point was the right thing to do.”  

The Fed has the luxury to hold rates here, the economy appears to be doing fine right now.  Last week GDP for 4th quarter was released and did show slowing from 3.1% in the 3rd quarter to 2.3% in the 4th.  With GDP for 2024 overall at 2.8%. This resiliency in the economy and the uncertainty of how Trump’s plans will impact things is the reason for the pause. 

Key Fed inflation Measure came in as expected

PCE for December came in as the market expected.  The fed focuses on the Core PCE reading which was up 0.3% for the month and the annual pace was 2.8%.  Coming in as expected is not to be confused with inflation improving.  For reference, the inflation reading for December was 3 times greater than November.  Mortgage rates held steady because this rate of inflation was already priced in.

To tariff or not to tariff- that is the question

25% tariffs on Canada and Mexico and 10% on China were announced over the weekend. Even though we had known tariffs were coming, it still affects markets when implemented. The volatility comes from not knowing which tariffs will stick and if tariffs are merely a negotiation tool. Trump posted on social media “Will there be some pain? Yes, maybe (and maybe not!)” He added that “it will all be worth the price that must be paid” 

As of the time of this writing, the tariffs with China are still in place and China has announced a retaliation in tariffs on the U.S. focused on our energy exports. But it’s a fluid situation and could change in a moments notice. The direction tariffs take will be a main focus this week for markets.

First week of the month means we get all the latest employment data

This week we get all the employment data for January and that kicked off today with the JOLTS reading that shows the current job openings.  It came in well below expectations.  Since 2022 job openings have fallen from the peak of 12 million job openings down to 7.6 million currently.  We received news a few weeks ago that even this number is overstated by about 22% based on how the openings are counted.  The quit rate also is low, signaling that job opportunities have shrunk.  Unsure if this data will show up in this Friday’s job report.  The past few jobs reports that surprised with higher or lower employment have caused big rate swings, for better or worse, so we are watching Friday closely.

Everything all at once

There are so many things happening right now. Normally the employment data that will be released this week is the biggest market mover, but the tariffs could overshadow that and are the wild card. With all the changes happening the markets are uncertain over how the changes in policy will impact the economy leading to volatility.  There is no way to say with any degree of certainty what comes next, and the rate outlook path remains unclear for now.


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