Market Update: An Overall Successful Week for Rates; More Volatility Coming Up with This Week’s Inflation News

Blog posted On December 12, 2023

Give rates a pat on the back! Last week, the employment situation reports came in stronger than expected. Typically, this would lead to higher rates. However, rates were resilient and didn’t react as badly as anticipated. They inched slightly higher from earlier in the week, but not nearly as volatile as it could have been. Part of this could be the overall trend in economic reports as of late. They have been on a steady trend downward, which is good for the bond market (and the bond market influences rates). This morning we got the consumer price index from November, which was largely in line with expectations. More on the implications of both reports below.

Don’t we want a strong labor market?

It’s complicated. While a strong labor market can be good for those looking for a job, it can be less good for those looking for a home. Here’s why: “Strong labor market data is bad for rates, all other things being equal, because a stronger economy runs the risk of higher inflation and inflation is the mortal enemy of interest rates,” writes Matthew Graham of Mortgage News Daily. All things being equal, a weaker labor market = better for interest rates.

Inflation on the consumer price index: not too bad

This morning’s report showed that inflation is right in line with economists’ expectations. Though the month-over-month data was slightly higher than expected, the overall trend is on track. The main culprit of the monthly gain was used car prices. As long as the overall trend of inflation continues to cool, it should not negatively affect rates.

Coming up tomorrow is some big news from the Fed. First, the intrest rate projections for the upcoming years. Next, December’s interest rate decision, the Federal Open Market Committee (FOMC) statement, and the press conference with Fed Chairman Jerome Powell.

Questions? Let us know!

Sources: Mortgage News Daily