Although the latest core PCE met expectations, investors grow increasingly concerned with slowing global economic growth. Overall, this generated a favorable reaction for mortgage markets this week. On the other hand, the major economic reports and Fed minutes caused little reaction. Thus, mortgage rates ended the week a little lower.
Several factors caused investors to gradually reduce their outlook for global economic growth, particularly in Europe. These include lockdowns in China due to the pandemic and sharply higher food and energy prices. Since slower growth reduces future inflationary pressures, this reflected positively for mortgage rates.
The Latest Core PCE & Federal Reserve Produce No Surprises
Speaking of inflation, The Federal Reserve favors the PCE price index as its go-to inflation indicator. In April, the latest core PCE increased 4.9% higher than a year ago, matching expectations, and down from 5.2% last month. For comparison, the annual rate of increase fell below 2.0% during the first three months of 2021.
Also, Wednesday’s release of the May 4th Federal Reserve meeting contained no surprises. To help the economy recover from the pandemic, the Fed put in place extremely loose policy measures. With the recent surge in inflation, officials began the process of tightening. The big question is whether increasing the federal funds rate back to just a “neutral” level, meaning that it will neither stimulate nor restrain economic growth, will be sufficient to bring down inflation. Some officials noted in the minutes that raising rates even higher to a “restrictive” stance, which would slow the economy, may be appropriate depending on future financial conditions.
Mortgage Rates Stall New Home Sales
Worth noting, the median new-home price rose an eye opening 20% higher than last year at this time to $450,600, partially due to inflation and the latest core PCE. Reflecting the increase in mortgage rates and home prices, sales of new homes declined in April. As a matter of fact, new home sales dropped a massive 17% from March to an annualized rate of 591,000. Thus, new home sales fell far below the consensus forecast of 750,000.
In January 2022, new home sales hit 839,000. With the release of April 2022 new home sales, the statistic declined to its lowest level since April 2020.
Looking Ahead After the Latest Core PCE
Looking ahead after the latest core PCE report, investors follow news on Ukraine and COVID-19 case counts in China. In addition, investors look for additional Fed guidance on the pace of future rate hikes and bond portfolio reduction.
While mortgage markets close on Monday in observance of Memorial Day, the ISM national manufacturing index comes out on Wednesday. Later, the ISM national service sector index publishes on Friday. On that same day, the key Employment report releases. As always, these figures on the number of jobs, the unemployment rate, and wage inflation represent the most highly anticipated economic data of the month.
Despite year-over-year growth with the latest core PCE data, mortgage rates slightly decreased. 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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