MARKET ANALYSIS and MORTGAGE RATES WEEK OF 5-08-2023
Troubling Banking Sector Brings Volatility
With a wide range of major economic news, it was a volatile week for mortgage markets last week. The net impact of the significant economic data and the Fed meeting was relatively small, however, and mortgage rates ended with surprisingly little change.
Banking Troubles Triggers Another Fed Rate Bump
With troubles in the banking sector rising to the surface again, the Fed essentially stuck to the expected script on last Wednesday. Officials increased the federal funds rates by another 25 basis points to the highest level since August 2007 while keeping their options open on whether additional rate hikes will be needed. According to the meeting statement, future monetary policy will be determined by incoming economic data and “developments” in the banking industry. During the press conference, Chair Powell said that “a decision on a pause was not made today.” However, most investors now anticipate that this was the last rate hike.
Strong Wage Growth
The latest Employment report revealed moderate job gains and stronger than expected wage growth. The economy added 253,000 jobs in April, above the consensus forecast, but downward revisions reduced the results for prior months. Particular strength was seen in professional services, health care, and leisure. The unemployment rate unexpectedly dropped from 3.5% to 3.4%, matching the lowest level since 1969.
Fed Keeps Close Eye on Wage Growth
Average hourly earnings, an indicator of wage growth, increased 0.5% from March, well above the consensus forecast. They were 4.4% higher than a year ago, up from an annual rate of 4.2% last month. Fed officials keep a close eye on wage growth because it generally raises future inflationary pressures.
Consumers Choose Services Over Goods
Two other significant economic reports released last week, from the Institute of Supply Management, were roughly in line with expectations. The ISM national services sector index was 51.9 and the ISM national manufacturing index was 47.1. Since readings above 50 indicate an expansion in the sector and below 50 a contraction, this data continues to highlight the consumer preference for services over goods.
Major Economic News Due This Week
Investors will continue to keep a close eye on the banking sector for signs that troubles are spreading to other institutions. They will also watch to see if Fed officials elaborate on their plans for future monetary policy. The biggest economic report released next week will be the Consumer Price Index (CPI) on Wednesday. CPI is a widely followed monthly inflation indicator that looks at the price changes for a broad range of goods and services.
Update courtesy of Mark Cohen, Mortgage Broker