Hot Inflation Report ???, Cool Sales Data ??

2/10-2/14 Headline: Inflation Uptick?Causes Market Uncertainty

A wild week for rates. Inflation, Retail Sales, Powell speaking at Congress, Musk speaking in the Oval Office, and massive layoffs at the federal government were some of the headlines that caused volatility in mortgage rates.?

Rates were fairly flat on the week. The average rate on a 30-year fixed rate conventional loan is 6.81% (from 6.79%). Sign up for our weekly Friday rate texts to stay in the know on where rates are week by week! It's a must for anyone planning to buy or refinance in 2025!?

Inflation Heats Up ???

Things got spicy this week when the CPI report showed a 0.5% increase for the month and annual inflation at 3% (up from 2.9% last month).? Both numbers were higher than expected. Core CPI also ran above forecasts at 0.4% and 3.3% respectively.?The news was somewhat expected as rising food costs (especially eggs) continues to make headlines.

Shelter costs continue to be sticky - up 4.4% year-over-year - however, that is the smallest 12-month increase since January 2022 (down from 4.6% last month). Shelter costs make up 1/3 of the overall CPI number so getting this figure down has been a key task for the Fed. However, high rates also contribute to higher year-over-year shelter costs (a bit of a chicken and the egg situation). At the end of the day, everyone wants to see shelter costs closer to the pre-pandemic level of 3% year over year.

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Retail Sales Cool Down ??

Frigid temps had a cooling effect on retail sales data, which saw its biggest plunge in over 2 years dropping 0.9%! Median forecasts expected just a 0.2% drop. Analysts point to California Wildfires, motor vehicle shortages and the cold weather?

If hot retail sales = future inflation concerns, cool retail sales should signal lower inflation ahead. After all, excluding autos, prices fell 0.4%, also well off the consensus forecast for a 0.3% increase. I stress should because in this post-pandemic world, we've seen several sure fire signs of smooth waters ahead only for it to turn out to be a head fake. As we see more data come in (and the full effect of Trump tariffs take hold), we'll be able to say more confidently what today's data means.

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Powell's Visit To Capitol Hill

Powell's bi-annual trip to to Congress happened last week and it went largely as expected! Powell said “We are in a pretty good place with this economy," noting that the Fed was in no hurry to make any further interest rate cuts, but stood ready to do so if inflation declines further or the job market weakens. There were talks about tariffs and inflation concern but nothing that gave any new information that we didn't already know. Basically - a bit of a dud.

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Musk in the Oval Office

Elon Musk along with his son took reporter questions about the implementation of Musk's Department of Government Efficiency (DOGE) initiative inside the oval office, which had media outlets buzzing. Whether or not you agree with Musk's motives or DOGE's actions, a cut in government spending could be a good thing for interest rates (or at least that's what some economists say). Remember that in 2024 the US had around a $1.83 TRILLION annual deficit (up about $200B from 2023).? Hard to believe that the US government actually had a surplus in 2001 of $130B. The economic theory goes that the bigger our deficit becomes, the riskier the US becomes as a country. In order to continue to fuel growth through debt (aka treasuries), the US will have to issue treasuries at higher rates to compensate for that risk. Higher treasury rates = higher mortgage rates. If you subscribe to this economic theory (and there are others out there), then what Musk is doing is critical to maintaining a healthy economy and lower rates. Big spending cuts are already happening with very public layoffs, but these layoffs are drop in the bucket compared to the overall spending of the US Government., It's too soon to tell if Musk's efforts will result in a net benefit or net detriment to every day Americans.

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Rate Cut Predictions?

After CPI reporting, the market is just barely hanging on to hope that we'll see our first cut in 2025 on June 18th!

Just remember lowering the Fed funds rate doesn't necessarily result in lower mortgage rates. TLDR; if you want to learn more about the connection between the Fed funds rate and mortgage rates, click here.

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Source:Bureau of Labor Statistics

Key reporting dates this week:?

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Mon, 2/17: President's Day holiday, Fed Governors speaking

Tues, 2/18: ?NFIB optimism index, Fed members speaking

Wed, 2/19: Home builder confidence index, Housing starts, Building permits, Minutes of Fed's January FOMC meeting

Thurs, 2/20: Initial jobless claims, U.S. leading economic indicators, Philadelphia Fed manufacturing survey

Fri, 2/21: Existing home sales, Consumer sentiment (final)

If I can be of any assistance, I'm always here to help so if you have any questions or just want to learn more, feel free to email or call/text me at 512-701-1819.?

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Best,

Eric

o: 512-881-3266 | m: 512-701-1819??