This is Matt Graham with the MBS Live Market Update. We already know that the Fed did not cut rates two weeks ago, and we went to great lengths to remind you that even if the Fed had cut, it wouldn’t necessarily have meant mortgage rates would move lower. In fact, past examples often show that mortgage rates. Diverge from the Fed funds rate when examined over short time horizons. Rather, it is the expectations for the Fed funds rate in the future that have a lot more in common with mortgage rate movement, and that is arguably what last week was all about. It actually began on the Friday of the previous week with comments from Feds Chris Waller that were much more open to the notion of a near term rate cut than the consensus at the previous week’s fed meeting. But that sentiment shifted into even higher gear on Monday of last week following a series of comments from Fed Vice Chair Bowman, who plainly said that it was time to consider cutting and that it could happen as early as July if inflation pressure was contained. Markets reacted to that fairly swiftly. And then a day later, Fed chair Powell began two days of his scheduled semi-annual congressional testimony, and he was arguably more dovish than he was at the press conference following the previous week’s fed meeting. In a nutshell, while differences of opinion remain, the Fed generally just wants to rule out the possibility that tariffs are going to cause any sort of sustained spike in inflation pressure, but they are otherwise willing to cut rates fairly soon. And Powell himself mentioned that he’s expecting to see inflation show up in the June data. And it was loosely implied that if it did not, then the Fed would be one step closer to considering rate cuts and with several Fed members calling for those cuts as early as July, that would be at the very next Fed meeting. Bonds really liked that and rallied to the best levels in more than a month, but we should also consider that right around the same time that Fed Chair Powell began his testimony, there was some data that may have added. To the move. It’s not immediately apparent because it’s not necessarily a report that typically causes big movement, but there’s a component of this report that bond traders definitely pay attention to. We’re talking about the conference board’s Consumer Confidence index, notably different than the consumer sentiment survey from the University of Michigan and inside. The consumer confidence numbers, there is a metric called the labor differential, which measures the difference between the responses in two questions in the survey. Those questions basically ask do you think that jobs are hard to get or that jobs are plentiful? Subtracting one from the other yields the labor differential, which is a metric that closely tracks and even predicts shifts in the unemployment rate. Right now, the labor differential has been rising to levels that increasingly suggest an imminent increase in the unemployment rate, and that has some traders expecting to see weakness in the labor market data in the weeks ahead. With this being a holiday shortened week and with the jobs report coming out on Thursday. It’s a critically important week for economic data despite the holiday, and if the jobs report were to confirm some of this potential weakness suggested in other data, then it would validate much of the recent rally in rates and possibly extend it depending on the nature of the data. Ultimately, next week’s inflation report will be just as important, if not more important. Because it will be the first major confirmation or rejection of the notion that tariff driven inflation is going to show up in the economic data in a significant way. If that CPI report were to come out lower than expected, then rates would likely continue to rally and we are likely entering. A phase where CPI, PPI are going to be as important as they were before everybody started talking about taking them with a grain of salt due to the unknown impacts of tariffs and trade policy. As a reminder, the bond market closes early on Thursday and will be fully closed on Friday for the Independence Day holiday. That’s all for now. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He’s been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry’s most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily’s rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he’d care to admit.