Market Update: Rates See Relief Last Week After Fed Announcement and Employment Situation

Blog posted On May 06, 2024

First, it’s important to clarify that the Federal Reserve doesn’t directly set mortgage rates. When people talk about the Fed ‘hiking’ or ‘cutting’ rates, they’re referring to the benchmark interest rate. The Fed’s rate decisions rarely have a consequential effect on mortgage rates because in most cases the markets already know what the decisions will be before the announcement, and they adjust pricing accordingly. The bigger event on Fed announcement day is the press conference from Fed Chair Jerome Powell. Here, the markets get a better idea of what the Fed is thinking about for the future. In the most recent conference last week, the markets got a better idea about what the Fed’s thinking for future rate hikes/cuts.

Recent inflation increases have had the markets on edge. There were some rumblings about whether or not the Fed will HIKE rates to curtail inflation. But Fed Chair Powell’s conference put them at ease. “Powell (and, indeed, the Fed announcement itself) definitely acknowledged that inflation data meant a delay for the Fed's next move, but in the press conference, Powell reiterated that the next move was much more likely to be a cut [not a hike], based on the trajectory of the data,” noted Matthew Graham of Mortgage News Daily. As a response, the bond market and consequently rates were happy.

More good news for rates came on Friday with the employment situation reports with data from April. A lot of the more important reports (average hourly earnings, nonfarm payrolls, unemployment rate) came in below expectations. Weaker jobs numbers = weaker economy = better for rates (generally)

Reach out if you have any questions about what this means for you!

Sources: Mortgage News Daily