As expected the Fed announced a rate hike this week in their latest step to combat inflation. While the Federal Reserve’s actions met investor expectations, the Employment report similarly neared the consensus. In an extremely volatile week, mortgage rates rose higher.
Fed Announces Rate Hike
As expected, the Fed announced a rate hike of 50-basis points on Wednesday. Also, the Federal Reserve provided details about its plans for scaling back its massive $9 trillion portfolio of Treasuries and mortgage-backed securities (MBS). This plan allows bond holdings to decline by $47.5 billion per month for the next three months. Beyond that, bond holdings decrease by $95.0 billion monthly after that, consistent with investor expectations.
The big market reaction came during Chair Powell’s press conference, shortly after the meeting. When asked whether the Fed might implement 75-basis point rate hikes at upcoming meetings, Powell mentioned that they weren’t considering that. In doing so, stocks and bonds experienced a substantial rally. On Thursday, investors decided that ruling out larger rate hikes did not change their underlying concerns about inflation. Stocks and bonds completely reversed their gains from the prior day.
Employment & ISM Reporting
Aside from the Fed announcing a rate hike, Friday’s closely watched Employment report came in right on target. Against a consensus forecast of 400,000, the economy added 428,000 jobs in April. The largest gains were seen in the leisure and hospitality sectors. The unemployment rate remained at 3.6%, the lowest level since early 2020. Average hourly earnings were an impressive 5.5% higher than a year ago, roughly the same annual rate as last month.
Additionally, the Institute of Supply Management (ISM) released its manufacturing and service sector indexes this week. Both remained at high levels by historical standards. The national service sector index came in at 57.1 and the national manufacturing index at 55.4. Levels above 50 indicate that the sectors are expanding.
Looking Ahead After the Fed Announced a Rate Hike
After the Fed announced a rate hike, investors look for additional Fed guidance on the pace of future rate hikes and bond portfolio reduction. In addition, investors continue to closely follow news on Ukraine and COVID-19 case counts in China.
Beyond that, next week’s emphasis focuses on inflation. In particular, the Consumer Price Index (CPI) releases on Wednesday. Investors widely follow as a monthly inflation indicator. CPI looks at the price changes for a broad range of goods and services.
As the Fed announced a rate hike, mortgage rates rose higher. Never miss an update with MBSQuoteline. To receive by-the-minute updates on mortgage-backed securities, try our platform free for 14 days.
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