Mortgage applications fell 2% last week as purchases fell 1% and refis fell 5%. “Purchase applications saw the strongest weekly pace in almost two months and were 7 percent higher than a year ago. Last week’s purchase activity was driven primarily by a 6 percent increase in FHA applications, as the combination of loosening housing inventory and slowly declining mortgage rates have presented this segment of buyers with more opportunities,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Additionally, VA purchase applications saw a modest increase over the week. Overall applications declined, however, as refinance applications were down 5 percent to its lowest level in a month.”
Added Kan, “Markets remained focused on potential trade policy changes, while the Fed held the funds rate its current level, resulting in the 30-year fixed rate averaging 6.71 percent last week.”
Durable goods orders rose 0.9% in February, which was well above Street expectations. Durable goods orders ex-transportation rose 0.7%, again above expectations. The upside surprise was primarily attributed to aircraft orders. The strength in orders is being attributed to a rebound after a few weak months. Business might be front-loading some orders ahead of tariffs. That said, shipments remain strong so business is doing reasonably well.
It does pour some cold water on the narrative that Trump is causing enough uncertainty that business is sitting on its hands. I am not sure how much of this is astroturfed media wishcasting and how much is real. Q1 earnings will tell the story, especially what is said on earnings conference calls.
The latest Atlanta Fed GDP Now model still sees -1.8% growth in Q1 however.
Stocks are lower this morning after markets digest the Fed move yesterday. Bonds and MBS are up.
As expected, the Fed didn’t make any changes to the Fed Funds rate, and the dot plot became marginally more hawkish. You can see the comparison between December (left) and March (right) below. The central tendency is for 50 basis points of cuts this year.
The forecast for 2025 economic growth was revised downward from 2.1% to 1.7%, while the unemployment rate was bumped up to 4.4% from 4.3%. The estimate for headline PCE inflation increased from 2.5% to 2.7%, while the estimate for core PCE inflation rose from 2.5% to 2.8%.
Despite the hawkish plot and forecast, bonds rallied because the Fed is reducing quantitative tightening, and will cap runoff at $5 billion per month instead of $25 billion per month. This will create incremental demand for Treasuries at bond auctions, which will help absorb supply. The Fed did not adjust its runoff for MBS.
The press conference prepared remarks are here. The highlights are below:
Economic activity continued to expand at a solid pace in the fourth quarter of last year, with GDP rising at 2.3 percent. Recent indications, however, point to a moderation in consumer spending following the rapid growth seen over the second half of 2024. Surveys of households and businesses point to heightened uncertainty about the economic outlook. It remains to be seen how these developments might affect future spending and investment.
In the labor market, conditions remain solid. Payroll job gains averaged 200 thousand per month over the past three months. The unemployment rate, at 4.1 percent, remains low and has held in a narrow range for the past year. The jobs-to-workers gap has held steady for several months. Wages are growing faster than inflation, and at a more sustainable pace than earlier in the pandemic recovery. Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures
Inflation has eased significantly over the past two years but remains somewhat elevated relative to our 2 percent longer-run goal. Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.5 percent over the 12 months ending in February and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent. Some near-term measures of inflation expectations have recently moved up. We see this in both market- and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal.
Looking ahead, the new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity.
Finally, the Fed Funds futures now see a 70% chance for a rate cut at the June meeting, and have 3 cuts this year as the most likely scenario. We will probably see 25 at the June, September and December meetings.
If we take the 4 issues Powell mentioned: trade, immigration, fiscal policy and regulation, we can talk about how it affects growth and inflation.
Trade: tariffs will be a net negative for growth and inflation, at least in the short term. Trump is hoping that tariffs will either (a) force our trading partners to reduce their tariffs or (b) increase investment in domestic production. If (a) happens, that is a positive for growth and inflation. If (b) happens, that is probably good for growth, but not so much for inflation. If a trade war is the result, it will be bad for growth and inflation.
Immigration: Reducing immigration will probably be bad for inflation and growth in the short term. That said, it probably won’t have a big impact either way.
Fiscal Policy: Reducing government spending will reduce GDP and inflation. As government workers are cut, and contracts decrease, the labor market will weaken.
Regulation: Deregulation generally reduces costs, so it will be positive for inflation and growth.
I suspect the net effect of all of this will be minimal, but the possibility for outsized effects remain a tail risk. So chances are it won’t affect monetary policy one way or the other. Notwithstanding the jump in inflationary expectations out of the UMich consumer sentiment survey, pricing on 5 year TIPS remains more or less in the same range it has been in for the past 2 years. The pricing on 10 year TIPS is even less dramatic.
Stocks are lower this morning on the escalating trade war. Bonds and MBS are down.
We had another benign inflation report, with the Producer Price Index flat on a month-over-month basis. The Street was looking for a 0.3% increase in the index, so this was a sizeable pleasant surprise. On a year-over-year basis, the PPI rose 3.2%.
If you strip out food and energy, the index fell 0.1% MOM and rose 3.4% on a YOY basis. In theory, this should be good for the bond market, however trade issues are overshadowing the good report.
It is getting hard to keep track of where we are on tariffs – what has been threatened, what has been implemented, what has been revoked, etc. Tariff threats are sucking up all of the oxygen right now, and that is pushing stocks lower. Theoretically that should be good for bonds, but tariffs reduce demand for Treasuries. This is because most countries run trade surpluses with the US, so instead of buying US goods and services countries buy Treasuries instead.
Initial Jobless Claims came in at 220k, which has been the typical level for years. If there is this army of recently-terminated government workers out there, the initial jobless claims aren’t reflecting it.
Donald Trump looks set to nominate Michelle Bowman as the country’s top banking regulator. She is going to replace Michael Barr, and will probably pursue a more deregulatory approach to banking regulation.
Stocks are flattish this morning after the ADP jobs report came in light. Bonds and MBS are down small.
The private sector added 77,000 jobs in February, according to the ADP Employment Report. The consensus was for 162,000 jobs, so this is a sizeable miss. “Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” said Nela Richardson, chief economist, ADP. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
Pay increased 4.7% for job stayers. ADP looks at private payrolls, not total, so it would correspond to the 143,000 expectation for Friday’s jobs report. Friday’s jobs report could miss substantially on the back of DOGE and government workers / contractors being let go.
Mortgage applications rose 20% last week as purchases rose 9% and refis increased 37%. The 30 year fixed rate mortgage declined from 6.88% to 6.73%.
“Mortgage rates declined last week on souring consumer sentiment regarding the economy and increasing uncertainty over the impact of new tariffs levied on imported goods into the U.S.,” said Joel Kan, an MBA economist, in a release. “Those factors resulted in the largest weekly decline in the 30-year fixed rate since November 2024. This is a period where we typically see purchase activity ramp up and purchase applications were up over the week and co
Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
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Kevin S. Willis
Michigoose
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markinaustin
Arcanaut
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quarterback
ScottC
yellojkt
All Things in Moderation 