- Inflation continues to drop.
- The economy is strong with retail sales up 0.6% in just one month.
- Unemployment has barely moved, staying put at 3.8%.
- The strong jobs market and economic conditions continue to keep upward pressure on mortgage rates.
- The Fed addressed the potential impact of the escalating long-term Treasury yields.
- A temporary halt in interest rate increases may be in sight.
Unemployment Rate vs. Federal Funds RateTake a look at the five-year Treasury and the fact that it has continued to climb for almost six straight months. It’s pretty incredible to see rates move higher this quickly at the exact time that inflation is moving lower. The reason mortgage interest rates continue to increase is mainly due to the jobs market.
The Fed Signals a Possible End to Future Rate Hikes
In a recent speech, Federal Reserve Chair Jerome Powell addressed the potential impact of the escalating long-term Treasury yields on the Fed’s trajectory for interest-rate adjustments. His remarks highlighted a comprehensive understanding of the current economic landscape and its implications for monetary policy decisions.
- Temporary Halt in Rate Increases: Powell’s remarks indicated the possibility of a temporary suspension in the Fed’s interest-rate increases, considering the recent surge in long-term rates and the ongoing progress in curbing inflation.
- Market Reaction Analysis: The sharp ascent in long-term rates might serve as a substitute for a Fed hike, potentially decelerating economic growth if these elevated borrowing costs persist.
- Confident Outlook: Powell’s commentary cautiously acknowledged recent inflation declines and a cooling labor market, signifying the Fed’s growing confidence in its existing policy stance, thereby raising the threshold for any further rate hikes in the upcoming period.
- Navigating Economic Complexities: Despite robust economic activity, challenges persist, including diminishing inflation rates and the intricacies of post-pandemic supply chains, necessitating a careful and intricate forecasting approach for the Fed.