Land of Confusion
This past week interest rates moved higher with the 10-year Note yield briefly touching the highest levels of the year. Let's discuss what has happened the past couple of weeks and look ahead.
Fed Members Not Aligned
At the most recent Fed Meeting, Fed Chair Jerome Powell led the markets to believe there will be three rate cuts in 2024. The Federal Reserve's dot plot, which is a forecast of interest rates amongst the members, also suggested three rate cuts.
Yet to start the week, Atlanta Fed President Rafael Bostic, said he only sees one rate cut in 2024. This lack of unity, amongst the Fed members, creates volatility and uncertainty, which we continue to see in the financial markets.
The Global Slowdown
Interest rates are like bad economic news here and abroad. Over the last couple of weeks, we have seen numerous warning signals from major countries as they either have entered a recession or are threatening to do so. At the same time, there have already been surprise rate cuts by other central banks around the globe, like Switzerland, to stave off a slowing economy. This is important because if rates around the globe move lower in anticipation of a local recession, it puts downward pressure on our interest rates here at home.
Big Friday News, Markets Closed
On Friday, the financial markets are closed in observance of Good Friday. Yet, there are a couple of huge headline risk events taking place. First, the Fed's favored gauge of inflation, the Core Personal Consumption Expenditure index (PCE) will be reported. The Fed wants to see this number move sustainably towards 2%. Expectations are for it to come in at 2.8% year-over-year. If the number is reported hotter bonds may not like it, the opposite is true.
At lunchtime on Friday, Fed Chair Powell will speak and offer thoughts on the economy. You never know what can be said, and how it might move the market.
With financial markets closed on Friday, we will need to wait until Fool's Day Monday, April 1st to see the reaction. Let's hope the markets don't make a fool of us.
Key Levels
Both the Treasury and the mortgage-backed security market are trading right at key levels, placing no large bets in advance of Friday's headline risk. This coming week may determine whether interest rates improve further or get turned away higher.
Springtime Is Here
We are seeing housing inventory perk up across the country for the Spring home-buying season. Many people are finding opportunities with rates stabilizing off the highs of last Fall. Pent-up demand is being released as people finally say life goes on.
Bottom line: The Spring home-buying season may pose a terrific opportunity for those looking to make a move. Interest rates are not expected to decline sharply in the absence of a surprise recession signal. So, it may be wise to take advantage while others may sit on the sidelines.
