Overview: The biggest economic news over the past week, Wednesday’s Federal Reserve meeting, revealed no major surprises. The most significant reports contained mixed news and had minimal impact. As a result, mortgage rates ended the week nearly unchanged, remaining near their highest levels since November.
As expected, the Fed again made no change in the federal funds rate, leaving it at the same level since July 2023. Investors were hoping for additional guidance on the outlook for future monetary policy. However, the statement released after the meeting continued the message that officials want to gain “greater confidence” that inflation is on a sustainable downward path before they lower the federal funds rate. According to the statement, there has recently been a “lack of further progress” in getting inflation back down. In short, the economic data this year has indicated that the decline in inflation has stalled, and officials plan to wait and see if the downward trend resumes. Also notable, the Fed will slow the monthly pace of reductions in its holdings of Treasuries, but its policy toward mortgage-backed securities (MBS) will remain the same. Investors are still split about whether the first rate cut will take place in September or in December, similar to their expectations prior to the meeting. The timing will primarily depend on the inflation data in coming months.
The Personal Consumption Expenditures (PCE) Price Index is the Fed’s favored inflation indicator. In March, core PCE, which excludes food and energy to reduce short-term volatility, was up 2.8% from a year ago. This was the same annual rate of increase as last month and the lowest level since March 2021. While far below its recent peak, it remains above the Fed's target of 2%.
Gross domestic product (GDP) is the broadest measure of economic activity. During the first quarter of 2024, U.S. GDP rose at an annualized rate of 1.6%, well below the consensus forecast of 2.5% and down from 3.4% during the fourth quarter of 2023. The strongest segments were consumer spending, government spending, and residential investment, while imports subtracted from the overall growth rate. There is also an inflation component in the report that has gained more attention lately. It was higher than expected during the first quarter, which offset the otherwise favorable news for mortgage markets of slower growth.
Core PCE (annual % change)
Week Ahead
May 3
Employment Report
Institute for Supply Management (ISM) Services Index
May 14
Consumer Price Index (CPI)
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