Mortgage Market Update - 1/15/2024
Nick Steinhauer
I help homebuyers make wise financial decisions. First-timers, investors, veterans (THANK YOU!)...I'll take care of you like you're my mom.
Quick Lesson : CPI vs. PPI
To help understand this week’s update, I thought it would be best to start with a quick lesson on the difference between the CPI (Consumer Price Index) vs. PPI (Producer Price Index):
CPI (Consumer Price Index): When you sell a glass of lemonade to your friends or neighbors, CPI tells a story about the price that regular people (consumers) pay for the lemonade. If the price of a glass of lemonade goes up, CPI will go up. It tells us how expensive things have become for people who buy them.
PPI (Producer Price Index): To make lemonade, you need to buy lemons, sugar, and maybe some cups. PPI tells a story about the prices that businesses (producers), like your lemonade stand, pay for the things they need to make products. If costs go up, PPI will go up. It shows how expensive it is for businesses to make things.
December Inflation (CPI) Beats Forecast ??♂?
On Thursday, the Consumer Price Index (CPI) data from December surprised analysts by coming in a bit higher than expectations.
If we dig under the covers a bit, many of the basic necessities we all deal with day-to-day are running much higher than 3.4% :
Key Takeaway : With the annual CPI ticking up and core annual CPI basically flat, you begin to wonder whether the Fed’s job of taming inflation is done. But wait…
December Inflation (PPI) Declines ??
On Friday, the Producer Price Index (PPI) for December continued declining. Annually, core PPI came in at 1.8% vs. 2.0% from November. Remember, this report measures the price for things businesses need to make products.
With PPI closer to the Fed target of 2.0%, investors are still holding to their belief that we will see cuts in 2024 to the Fed Funds Rate which should provide relief to mortgage rates.
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Below is a chart that details the market expectations of a rate cut at future meetings of the Federal Reserve. SEVEN rate cuts are now being priced in through December 2024.
Key Takeaway : It’s hard to wrap my head around the market’s expectation of 7 rate cuts in 2024 based on the CPI and PPI reports from this week. The US job market is still ?? and wages are still ticking higher. CPI is 2x the Fed target. Why would they cut rates which technically should cause inflation to rise? Maybe politics are coming in to play here seeing that this is an election year. Nice, linear rate cuts leading into November would paint a much rosier picture for the incumbents looking for re-election.
RISE & THRIVE 2024 : Only a Few Spots Remain ??
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