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Fed Signals a More Hawkish Stance

Overview: Over the past week, investor expectations increased yet again for the pace of tightening by the Federal Reserve, which was negative for mortgage markets. The news about the conflict in Ukraine caused little reaction. As a result, rates continued to climb, reaching the highest levels since early 2019.


Since the Fed meeting had taken place just a few days earlier, investors were not expecting any significant surprises in a speech by Fed Chair Jerome Powell on Monday. However, they were caught off guard when he sounded even more hawkish (in favor of tighter policy) than he did during the meeting. Powell emphasized that the Fed “will take the necessary steps” to fight inflation, even if it means raising the federal funds rate by an aggressive 50 basis points at some meetings instead of just 25 basis points as they did last week. Powell explained that the inflation outlook was not coming down as anticipated even before the invasion of Ukraine and that the conflict could further disrupt supply chains and push up many commodity prices. Investors now expect an even faster pace of monetary policy tightening this year, including a 50 basis-point rate hike at the next meeting on May 4.

Sales of existing homes, which make up roughly 90% of the market, unexpectedly dipped in February, falling 5% from January. Inventory levels were down 16% from a year ago, at just a 1.7-month supply nationally, well below the 6-month supply that is considered a healthy balance between buyers and sellers, and near a record-low level. Continuing its extremely long climb, the median existing-home price was 15% higher than last year at this time at $357,300. Accounting for the remaining 10% of the market, sales of new homes in February were down 2% from January, and the results for January were revised lower as well. The median new-home price of $400,600 was up 11% from a year ago. Due to the rapid rise in mortgage rates this year, analysts have been lowering their forecasts for home sales in 2022.

With the shortage of available homes in many areas, investors have been closely watching the monthly reports on housing starts, and the most recent data was encouraging. In February, housing starts unexpectedly increased 7% from January to the best level since 2006. Builders reported persistent constraints to construction from higher prices and shortages for land, materials, and skilled labor.


Existing-Home Sales (millions)


Week Ahead

Mar. 23 — Durable Goods report

Mar. 29 — Job Openings and Labor Turnover Survey (JOLTS) report

Mar. 31 — Core Personal Consumption Expenditures (PCE) Price Index

Apr. 1 — Employment Report


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