What’s Happening?
All news below is color-coded as “good“, “bad“, or “neutral” for mortgage rates.
Rates are improving, largely driven by expectations that the Federal Reserve will cut rates at its September 17th meeting.
•Federal Reserve is on track to cut rates on 9/17 (good for rates): This is largely fueled by Fed Chair Jerome Powell’s testimony before Congress this week where Powell said, “if it turns out that inflation pressures do remain contained, we will get to a place where we cut rates sooner rather than later, but I wouldn’t want to point to a particular meeting.” More Fed members seem to be in favor of cutting rates.
•Escalating conflict in the Middle East with Iran (neutral for rates): Usually, war-like-events pushes rates down, but in this case, it was neutral. Strikes between Israel, Iran, and the US took place over the last 2 weeks, leading Iran to threaten to close the Strait Of Hormuz, a major waterway for oil transport. About 20% of all crude oil moves through here on a daily basis. Such a closure could push oil prices up by 25-50%+ very quickly, however, markets are calling Iran’s bluff as the price of crude oil has hardly moved and sits at $65/barrel.
•Inflation Report (good for rates): The May CPI (Consumer Price Index) report came in at 2.4% year-over-year, holding steady for the 3rd straight month. Some Fed members are pointing to this stable CPI reading as support for cutting rates “soon” (we think September 17th).
•Jobs Report (slightly bad for rates): The May BLS Labor Report signaled a stronger-than-expected labor market.
- New jobs came in much higher than expected at 139k new jobs; 125k were expected. A fairly accurate prediction means markets aren’t caught off guard too much.
- New jobs were concentrated in health care, leisure and hospitality, and social assistance. The Federal government lost 22,000 jobs.
- Unemployment stayed at 4.2%, but with more workers being deported, the labor participation rate fell from 62.6% to 62.4%.
