POST TAGSMarket Updates
Blog posted On July 31, 2023
Last week, the Federal Reserve raised the benchmark interest rate another 0.25%. The next day, mortgage rates trended higher. However, it wasn’t the Fed that influenced this trend. In fact, rates consequently trended lower following the Fed announcement and press conference on Wednesday afternoon. So what happened last week and what does it mean for rates going forward?
The Fed raised the benchmark rate, but hinted it could be the last of the year
Many people are aware the Fed raised the benchmark interest rate. Fewer people are aware that this does NOT directly indicate that mortgage rates will trend higher following the announcement. Why? Because by the time the Fed makes its announcement, the bond market (which influences mortgage rates) has already prepared for its decision. In other words, the markets knew what the Fed would likely decide, and they priced for it accordingly. What actually tends to have a bigger influence on rate trends on Fed announcement day is Jerome Powell’s press conference that follows. In this presser, the markets pick up on certain hints of what the future holds for rates. Prior to last week’s announcement, the markets were expecting one or two more rate hikes this year. But throughout Powell’s press conference they picked up on hints that there may not be any more hikes. Consequently, the repriced and that’s why we saw rates trend lower.
Jobless claims were surprisingly lower, and GDP was higher
So if the Fed’s rate hike DIDN’T cause rate to trend higher, what did? Answer: unexpectedly strong numbers on certain economic reports Thursday morning. Generally speaking, strong economy = higher-trending rates. Long story short, jobless claims were lower than anticipated and the GDP estimate for Q2 was higher than expected.
This week’s power hitters could change the swing of rates
There are two main sets of economic reports that have influential power on rates. One is inflation reports. The other is jobs data. This week is jobs week. We have the Job Openings and Labor Turnover (JOLTS) on Tuesday, ADP nonfarm employment change on Wednesday, and the employment situation on Friday.
We’ll keep you updated on how everything turns out and what that means for you.