Interest rates were pretty much unchanged from week to week, still elevated from the lows we witnessed back in September. Let's discuss what happened and look at the week ahead.

 "Money, money, money, money (money)" For the Love of Money - The O'Jays.

Consumer Inflation

The Consumer Price Index (CPI) was reported, and both the headline number, which includes food and energy, as well as the core, which excludes food and energy, met market expectations. The Core CPI is still running at a 3.3% annual rate, above the long-term historical run rate in the 2% range.

Looking ahead, the markets sense that the rent/shelter component, which makes up nearly 65% of the Core CPI, will continue to come down as rents decline in response to increased apartment rental supply. The markets were worried about a hotter reading and breathed a sigh of relief in response to the report.

Government Efficiency

President-elect Trump announced that Elon Musk and Vivek Ramaswamy will head a new Department of Government Efficiency. The task of the department is to create a government that is more efficient with its spending and programs. We should expect to hear more details on this initiative in the weeks ahead. For mortgage and housing, it will be an important story to follow because if we are able to cut wasteful spending, balance our budget, and pay down debt, the bond market will like it. The opposite is true as well. One of the main headwinds to lower mortgage rates right now is our unsustainable trajectory of debt. Last week at the Fed meeting, Jerome Powell said it is "ultimately a threat to our economy."

Fed Rate Cut Seen in December

With just under six weeks to go before the next Fed meeting, the chance of a 0.25% rate cut has climbed to an 80% probability, with the chances increasing in response to the in-line consumer price index mentioned above. What will be important to watch at the December meeting is what long-term rates do as the Fed cuts rates. So far, the Fed has cut rates multiple times, and long-term rates have continued to tick higher.

Oil Lower

In a welcome event for consumers and the financial markets, oil prices have slid lower. Some of this is due to reduced perceived demand from China, which is enduring a weak economic period, and the notion that the U.S. will continue to increase supply. If oil continues to slide lower, home loan rates will benefit as it brings disinflationary pressures.

Fed Speak

Fed officials were commenting on the economy and interest rates, and once again, it presented a mixed picture. Overall, most officials said the Fed should be cautious and measured about the pace of future rate cuts, especially with the uncertainty of where fiscal policy is headed with a new President and Congress.

Bottom line: Interest rates are trying to stabilize after the spike that started back in September. With a new administration still weeks away, we may continue to see bonds and rates move in a volatile fashion as we await clarity.

Looking ahead

Next week is a slower economic news week with just moderate impact releases. What could move the markets is continued Fed communication and any incoming news regarding fiscal policy with the new administration.

Mortgage bond prices determine home loan rates. The chart below is a one-year view of the Fannie Mae 30-year 5.5% coupon, where currently closed loans are being packaged. As prices move higher, rates decline, and vice versa. If you look at the right side of the chart, you can see the trend of lower prices and higher rates remains intact.

Chart: Fannie Mae Mortgage Bond (Friday November 15, 2024)

Economic Calendar for the Week of November 18 - 22