Market Update: Rates Climb Higher, Consumer Price Index Could Affect the Trend this Week

Blog posted On February 13, 2023

Mortgage rates trended higher last week after stronger-than-expected jobs reports the week before. A stronger jobs report indicates a stronger economy, which generally leads to higher rates. However, last week there were some other factors involved as well. Though there was a lot of change last week, it’s important to remember that this “doesn't carry an implication for the next move,” writes Matthew Graham of Mortgage News Daily. Meaning, just because last week’s rates trended higher doesn’t mean that they will continue on this path. In fact, a lot could change this week with the upcoming consumer price index scheduled for release tomorrow morning. If the inflation numbers come in hotter-than-expected, it could mean bad news for rates. But if they come in below expectations, rates could very well stabilize or trend lower.

Why did rates keep trending higher after the jobs reports?

The employment situation was released two Fridays ago – so why did rates keep trending higher most of last week? The short answer is that it can take time for rates to adjust to information the market has received. When we zoom in on what happened last week, there are a few other events that could have explained the movement. First, Fed Chair Powell had an informal Q&A last Tuesday at the Economics Club of D.C. In short, Powell commented on the jobs report and said that as the Fed predicted, inflation may be more persistent than the market thought and that rates may need to stay higher for a longer period of time.

The silver lining(s) to last week’s events

Up until last week, the Fed and the market weren’t quite on the same page about rate predictions for the coming year. The market was being hopeful. The Fed was being realistic. “The market had been betting that the Fed would be forced to cut short-term rates by the end of 2023 even though Fed members had repeatedly said rates wouldn't top out for a few more months at minimum and then remain at the ceiling for a year or two,” writes Graham. “The market thought the Fed was bluffing or wrong.” Last week helped minimize the gap between the two and get them on the same page. “[Last] week was about the market catching up to the Fed's messaging and giving up a bit of the exuberance it may have felt after identifying what we all hope will prove to be a very long-term top in rates last fall.” More hopeful news is that last week isn’t directly implicatory for the coming weeks/months. The trend could easily be reversed if this week’s consumer price index runs cool.

Consumer price index possibilities and their effect on rates

If inflation on the consumer price index falls more than expected, rates could return to lower-trending levels. But if it runs hot, it could cause rates to climb higher. Luckily, it would likely take more than one consumer price index for rates to return to last year’s highs.

Other important housing reports this week

Though the consumer price index takes the stage for important reports that could affect rates, there are additional reports that are important to the housing market overall. Schedule for release on Wednesday morning is the National Association of Home Builders’ (NAHB) housing market sentiment index for February. This report gauges the optimism/sentiment of home builders’ market outlook. This month, it’s expected to climb. Housing starts and building permits are also scheduled for release this week.

If you have any questions about the market movement or mortgage rate trends, let us know!

Sources: Bloomberg, Mortgage News Daily