Market Update: Rates Relatively Unchanged After an Eventful Week of Economic Reports

Blog posted On February 06, 2023

The Super Bowl may be this weekend but last week was quite the event. Mortgage rates started off the week fairly calm, trending near 4-month lows. They trended even lower after the Federal Reserve’s rate hike. Then the employment situation reports were released, sending rates on a higher trend. But by the end of it all, rates still finished the week roughly in line with where they started. Here’s a breakdown of everything.

Before the Fed Rate Hike

As mentioned in last week’s market update, mortgage rates had been trending with the most stability in over a year. They were still fluctuating, which is normal, but unlike the past year they were fluctuating within a much narrower range. During this downward trend/period of stability, mortgage demand increased, home sales climbed, and builder sentiment rose.

After the Fed Rate Hike

The Fed hikes the benchmark rate, mortgage rates trend lower. To most, this wouldn’t make sense. Why would rates trend lower if the Fed brought the benchmark rate higher? For starters, this 0.25% hike was the lowest in 10 months. In December, the Fed raised the rate 0.50%, and in November, September, July, and June, the Fed hiked the rate 0.75%. We’d have to go all the way back to the ‘liftoff’ in March 2022 – when the Federal Reserve first started raising the rate from 0% -- to see another 0.25% hike. So, to the markets, this was a good sign that things are going in the right direction. The markets were also happy because the hike was right in line with expectations. More importantly, Fed Chair Jerome Powell had an encouraging disposition during his press conference following the hike announcement.

The Employment Situation

The employment situation is one of the most influential reports, especially with bonds and rates. “If put to a vote, the perennial top dog would be The Employment Situation (aka "the jobs report"),” writes Matthew Graham of Mortgage News Daily. “Over the years it is responsible for more volume and volatility in rates than any other data.” The employment released on Friday was largely better-than-expected. While this is good for the economy, it’s not as good for bonds, which influence rates. Here are some of the numbers from the report:

The big one was the nonfarm payrolls – that’s what was most closely watched. But as you can see, most of the other reports outperformed as well.

The good news is that this is mostly just a blip and rates still ended the week around the same level they were at the beginning of the week. “The bigger picture is much calmer than it had been in late 2022,” notes Graham. “In fact, rates have generally been settling down and shifting into a sideways pattern ever since topping out in the fall. If inflation continues to decelerate and if the economy were to weaken, rates would likely continue lower, but if we see more data like we saw today, that progress would be delayed.”

This week is relatively calm in terms of market-moving reports. We will continue to keep you updated as much as possible! As always, let us know if you have any questions.

Sources: Bloomberg, Mortgage News Daily, Mortgage News Daily