Want to know where Mortgage rates are going? Fed Funds vs PPI...For Loan Officers.

Recent rate volatility makes it hard to predict the direction of long-term interest rates.?Are we in a recession or not? Is inflation under control??Yes, and no. We are in a recession; the definition is consecutive quarters of declining growth and we have already experienced that. However, the distorted labor and rate markets make this recession a little different.?Usually with slowing growth comes lower interest rates.?But due to the extremely tight labor market and rampant inflation, we are unable to lower rates to combat this slowing…price in-stability is crushing all of us.

The concept of price stability is paramount to a functioning society….nothing works without price stability. Inflation drives inequality and unsustainable markets, and because of its’ regressive nature it punishes those who can least afford it. Not good, and no thank you.?

To obtain price stability you must have the inflation rate and the Fed Funds in balance.?To be restrictive you need Fed Funds above the inflation rate.?The Fed stated last week they intend to move to restrictive territory.?OK, so where is that??

Current Trimmed mean PPI (Inflation measure) is 6.93%... current Fed Funds rate is 2.28% ( from Fed chart below).?We are 465 bps out of balance.?

Looking into the future, either inflation must come down significantly, or rates have to come up, or the most likely path is a combination of both. Even if you decide to meet halfway you would still need Fed Funds rates to rise 230 basis points from this point, that is assuming PPI falls by the same amount.

For Loan Officers, it is hard to see interest rates coming down significantly soon, like refi-wave good, as that would be inflationary in nature, and would prevent the Fed from getting this graph in balance which is their stated goal. We are going to have to work through this in-balance, and it's likely to take some time. We absolutely need the economy to slow significantly to help us get back in front of price stability.

It’s going to be a purchase market for a while. There may not be a ton of loans to be had every day, but there are certainly tons of relationships that can be made.?These people did not have time for you when we were in the boom, but they do now.?Be an advisor and don’t expect a loan to come out of every conversation.

Here are all the gory details, straight from the Fed:

Trimmed Mean PCE Inflation Rate | FRED | St. Louis Fed

Trimmed Mean PCE Inflation Rate | FRED | St. Louis Fed

Thanks for reading????Have a great day.

Warmest regards,

Rich Phillips

Partnerships & Wisdom

Billions Funded!?Multi-year recipient of ‘America’s top 100 Wholesale?AEs’ by the Scotsman Guide.