Investors in the bond market, which funds most mortgages, shrugged off hawkish comments from Federal Reserve Governor Christopher Waller, who wants to see “several months of good inflation data” before cutting interest rates.
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Investors in the bond market, which funds most home loans, shrugged off hawkish comments from Federal Reserve Governor Christopher Waller on Tuesday, with mortgage rates remaining well below their 2024 highs this week.
Speaking at the Peterson Institute for International Economics in Washington, D.C., Waller said that while last week’s consumer price index data for April was a “reassuring sign” that inflation was not accelerating, he wanted to see “continuation “Good inflation over the next few months” before he’s ready to cut rates, “looking at the data first.”
On Wednesday, the futures market tracked by the CME Group’s FedWatch tool showed a 60% chance that the Fed would cut interest rates one or more times before September 18, down from 72% on May 15 when April CPI data was released.
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Encouraging inflation data last week pushed interest rates on 30-year fixed-rate mortgages available through Fannie Mae and Freddie Mac below 7% for the first time since early April.
Mortgage rates drop from 2024 highs
The 30-year fixed-rate mortgage rate fell two basis points on Tuesday to 6.93%, data tracked by Optimal Blue showed. This is down 34 basis points from the 2024 high of 7.27% recorded on April 25.
Lower interest rates have prompted some homeowners to refinance, and refinance requests rose 7% last week from a week ago and 21% from a year ago, according to the Mortgage Bankers Association’s weekly survey of lenders.
But the MBA survey found that last week’s seasonally adjusted demand for home-buying loans fell 1% from the previous week and 11% from the same period last year.
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“Despite the recent decline in interest rates, buying activity continues to lag as potential buyers continue to face limited for-sale inventory and high prices,” MBA deputy chief economist Joel Kan said in a statement. List price.
The latest consumer price index showed that the prices of various commodities increased by 3.4% year-on-year in April, while the increase in March was 3.5%. It was the first time annual price growth fell since January.
The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, is closer to the Fed’s 2% inflation target, at 2.7% in March.
The next PCE data, due on May 31, could provide more downward momentum for mortgage rates as bond market investors anticipate future action from the Fed.
Waller, considered a centrist on monetary policy by Reuters, complained that Fed policymakers have been accused of being “over-reliant on data” and “sending confusing messages about the stance of monetary policy.”
Referring to his preference to keep interest rates on hold, he said that just one data point “should not change one’s view of the economy, which is why one’s outlook and the appropriate policy path tend to evolve over time.” changes”. Now.
“The latest CPI data is a reassuring signal that inflation is not accelerating, and the spending and labor market data suggest to me that monetary policy is in the right environment to put downward pressure on inflation,” Waller said. “While April’s inflation data represents progress, it is small, reflected in the fact that I need to report monthly data to two decimal places to show progress.”
Waller said that without “significant weakness” in the labor market, he would like to see “a few more months of good inflation data before I would feel comfortable supporting an accommodative monetary policy stance.”
“What do I mean by good data? What score do I need to give future inflation reports?” Waller asked rhetorically. “I won’t reveal that for a while, but I look forward to the day when I don’t have to take decimals out of my monthly inflation numbers.” Click the last two or three to find the good news. “
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