After the PCE and GDP data came out, MBS prices saw a quiet week. Overall, the market generated no surprises.
In particular, the latest read on inflation came in right on target. As a result, mortgage rates ended a quiet week with little change.
MBS Prices See Quiet Week as Inflation Matches Consensus
Holistically, the Federal Reserve favors the PCE price index as its inflation indicator. Additionally, the core PCE data excludes the volatile food and energy sectors. In March 2023, core PCE rose 4.6% from a year ago. Not only did this match the consensus forecast, it dropped from February’s annual rate of 4.7%. The cost of services continued to increase more than prices for goods.
Notably, the annual rate of increase in Core PCE remains far above the Fed’s target level of 2.0%. After peaking in September, many investors thought that it would continue to ease every month. However, the actual path contained further bumps. Fed officials repeatedly warned of the challenging inflation battle. For months, the economy failed to see progress. This is particularly relevant because how quickly their aggressive monetary policy tightening will bring down inflation has enormous implications for financial markets.
GDP and Housing Generated Little Buzz for Mortgage Markets
Gross Domestic Product (GDP) is the broadest measure of economic activity. During the first quarter, GDP rose at an annualized rate of just 1.1%, well below the consensus forecast and down from 2.6% during the fourth quarter of 2022. Strength was seen in consumer and government spending, while business and residential (housing) investment were sources of weakness. A significant drawdown in business inventory levels also reduced economic activity. Due to tighter monetary policy and troubles in the banking industry, early forecasts are for GDP growth to continue to weaken during the second quarter.
In housing news, sales of new homes in March posted a surprisingly large increase of 10% from February to their highest level since March 2022. In contrast to sales of previously owned homes which are down more than 20% from a year ago, new home sales are only slightly lower than last year at this time. The median new-home price of $449,800 is 3% higher than a year ago.
Looking Ahead After MBS Prices See Quiet Week
After the latest data showed MBS prices see a quiet week, investors look towards the next Federal Reserve meeting. Taking place on Wednesday, most people anticipate another 25 basis point increase in the federal funds rate. Additionally, investors hope that Fed officials elaborate on their plans for future monetary policy.
Later, the next European Central Bank meeting takes place on Thursday. The key Employment report releases on Friday. Analysts look to these figures on the number of jobs, the unemployment rate, and wage inflation for the month’s highest anticipated economic data. In addition, the ISM national manufacturing sector index comes out on Monday. Lastly, the ISM national services sector index publishes on Wednesday.
As MBS prices see a quiet week, mortgage rates remained roughly the same. To receive by-the-minute updates on mortgage-backed securities, try our platform free for 14 days.
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