Bond market investors who fund most mortgages shrugged off hawkish remarks by Federal Reserve Governor Christopher Waller that he wants to see “several more months of good inflation data” before cutting rates.
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Mortgage rates remain well below 2024 highs this week after bond market investors, who fund most home loans, shrugged off hawkish remarks Tuesday by Federal Reserve Governor Christopher Waller.
Speaking at the Peterson Institute for International Economics in Washington, D.C., Waller said that while last week’s release of Consumer Price Index data for April was a “reassuring signal” that inflation is not accelerating, he wants to see “several more months of good inflation data” before he’d be ready to cut rates.
Futures markets tracked by the CME FedWatch tool on Wednesday put the odds of one or more Fed rate cuts by Sep. 18 at 60 percent, down from 72 percent on May 15 when April’s CPI data was released.
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Last week’s encouraging inflation numbers brought rates on 30-year fixed-rate conforming mortgages eligible for purchase by Fannie Mae and Freddie Mac below 7 percent for the first time since early April.
Mortgage rates down from 2024 highs
Data tracked by Optimal Blue showed rates on 30-year fixed-rate mortgages dropped two basis points Tuesday, to 6.93 percent. That’s down 34 basis points from the 2024 high of 7.27 percent recorded on April 25.
Lower rates have prompted some homeowners to refinance, with refi requests up 7 percent last week compared to a week ago, and 21 percent from a year ago, according to a weekly survey of lenders by the Mortgage Bankers Association.
But the MBA survey found demand for purchase loans decreased by a seasonally adjusted 1 percent last week when compared to the week before, and was down 11 percent from a year ago.
Joel Kan
“Purchase activity continues to lag despite this recent decline in rates, as potential buyers still face limited for-sale inventory and high list prices,” MBA Deputy Chief Economist Joel Kan said in a statement.
The latest CPI release showed prices for a broad range of goods were up 3.4 percent in April from a year ago, compared to 3.5 percent in March. It was the first downward move in annual price growth since January.
The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, is closer to reaching the Fed’s 2 percent inflation target, registering 2.7 percent in March.
The next PCE data release on May 31 could provide more downward momentum for mortgage rates, as bond market investors anticipate future Fed moves.
Waller, who Reuters considers a centrist on monetary policy, complained that Fed policymakers have been accused of becoming “overly data dependent” and “sending confusing messages about the stance of monetary policy.”
One data point alone “should not change one’s view of the economy, and that is why changes in one’s outlook and the appropriate path for policy tend to emerge gradually and over time,” he said of his inclination to leave rates where they are, for now.
“The latest CPI data was a reassuring signal that inflation is not accelerating and data on spending and the labor market suggest to me that monetary policy is at an appropriate setting to put downward pressure on inflation,” Waller said. “While the April inflation data represents progress, the amount of progress was small, reflected in the fact that I needed to report the monthly numbers to two decimal places to show progress.”
In the absence of a “significant weakening” in the labor market, Waller said he wants to see “several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy.”
“What do I mean by good data? What grade do I need to give future inflation reports?” Waller asked rhetorically. “I will keep that to myself for now, but let’s say that I look forward to the day when I don’t have to go out two or three decimal places in the monthly inflation data to find the good news.”
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