Spotlight on Fed

This week brings the much-anticipated meeting of the Federal Reserve Open Market Committee (FOMC). While markets are not expecting an interest rate cut at this meeting, attention will be focused on Fed Chair Jerome Powell’s post-meeting comments. Over recent months, the Fed has backed away from earlier projections of rate cuts in 2025. Initially, this shift was driven by persistent inflation, but the pause has now been reinforced by concerns that inflation progress could be reversed due to rising import tariffs and a deficit-expanding U.S. budget bill. Markets will be looking for any signals about the Fed’s outlook for potential cuts later this year.

On the inflation front, last week delivered encouraging news. Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) came in lower than expected, reflecting a notable decline in core inflation levels. Under normal conditions, such data would likely have triggered a stronger rally in the bond market, pushing down yields and mortgage rates. However, investor sentiment remains cautious amid ongoing uncertainty surrounding trade policy and fiscal developments. As a result, the rally in bonds was modest.

A final wildcard for the markets this week is the escalating conflict between Israel and Iran. If tensions continue to rise, it could dampen market confidence and have ripple effects through the bond market and mortgage rates, adding another layer of complexity to an already uncertain economic environment.

Home Loan Rate Volatility: HIGH
Home Loan Rate Trend: FLAT