POST TAGSMarket Updates
Blog posted On April 03, 2023
Average mortgage rates trended higher toward the beginning of last week due to bond market stabilization following weeks of banking drama. On Friday, the personal consumption expenditures (PCE) index showed that inflation was cooler than expected in February. Inflation is the enemy of bonds (which influence rates); therefore, rates trended slightly lower following the report’s release. This week holds some potential for rate movement with the various jobs reports scheduled for release: the job openings and labor turnover survey (JOLTS), ADP nonfarm employment change, and the employment situation on Friday.
The PCE index for February was at a level of 0.3% month-over-month and 5% annually. It was expected to come in at 0.5% and 5.1%, respectively. The core PCE index, stripping food and energy costs, was below experts’ predictions as well – at 0.3% month-over-month and 4.6% annually vs. the 0.4% and 4.7% expected. Though the levels were only slightly below expectations, the lower the inflation levels, the better. Inflation has been one of the most influential factors on rate trends over the past year. The other important factor has been jobs reports.
Why are the jobs reports so important to rates? While they’re not directly related, jobs reports and rates are extended relatives. The Federal Reserve has been closely watching the jobs reports over the past year. It wants the labor market to cool. A hot labor market can indicate too much spending for that the economy can support, which would lead to inflation. “It’s not only the labor market that the Fed looks at, but it’s the labor market that probably has the clearest signs of it, the ones that are easiest to interpret,” notes Joseph Gagnon, senior fellow at the Peterson Institute for International Economics and former visiting associate director for the division of monetary affairs for the Federal Reserve Board. “It covers every worker who’s doing anything economic, who is producing anything in the whole economy.”
The Federal Reserve uses this jobs data to determine how it can help support the economy. One of the tools it has is the benchmark interest rate. The higher the Fed sets the rate, the more downward pressure it puts on inflation. Long story short, jobs reports affect the Fed’s decisions, Fed decisions can impact the bond markets and bond markets can impact rates.
Stay tuned for our updates on this week’s jobs reports!