The direction of rates is of interest to all of us. Are rates going down or are they staying the same? Worst of all would be if they head back up. Low rates benefit homebuyers of course, but they also benefit seniors downsizing because lower rates create a stronger pool of potential buyers.
Direction of Rates?
In 2024 the rate of inflation will be the primary driver of the Fed’s monetary policy and subsequently the direction of rates. Consumer inflation (CPI) released Thursday was slightly higher than expected due to rising shelter costs. Because economists expect shelter costs to decline as leases are renewed throughout the year the capital markets were able to absorb this data point without much upward pressure on rates. Friday’s release of producer inflation (PPI) provided a positive signal having decreased when consensus was for an increase. This is especially positive because PPI is considered a better leading indicator of inflation since producer costs ultimately impact prices paid by consumers. As a result, rates ended the week slightly lower than last.
The producer price index, a gauge of wholesale prices, fell 0.1% for the month and ended 2023 up 1% from a year ago, the Labor Department reported Friday. Excluding food and energy, core PPI was flat against the estimate for a 0.2% increase. Excluding food, energy and trade services, PPI also was up 0.2%, in line with the estimate.
Mortgage markets will be closed Monday in observance of MLK day. Application activity picked up significantly this week but we still need more listings. This spring should be hopping!
What did the Indices Show?
Wholesale prices unexpectedly declined in December, providing a positive signal for inflation, the Labor Department reported Friday.
The week started quietly with no real significant movement leading up to CPI on Thursday – which fell in line with expectations. The shelter component (40%+ of #) ticked up 0.5% which wasn’t good to see and is not going to facilitate a drop to target inflation BUT we know this metric lags considerably too. The producer price index fell 0.1% for the month and ended 2023 up 1% from a year ago, the Labor Department reported Friday. Economists surveyed by Dow Jones had been expecting a monthly gain of 0.1%. The index had surged 6.4% in 2022.
Excluding food and energy, core PPI was flat against the estimate for a 0.2% increase. Excluding food, energy and trade services, PPI also was up 0.2%, in line with the estimate. For the full year, the final demand measure less food, energy and trade services rose 2.5% for all of 2023 after being up 4.7% in 2022.
The PPI release comes a day after less encouraging news from the Labor Department, which reported Thursday that the prices consumers pay for goods and services rose 0.3% in December and were up 3.4% on the year. That was higher than Wall Street expectations and still a good deal away from the Fed’s 2% inflation target.
While this did not meet the Fed’s 2% inflation target, the expectation is that the Fed will still reduce rates this year, but perhaps not as soon as everyone is hoping for. Still, there is hope that the direction of rates will be down in 2024.