This month’s report shows the slowest month-to-month growth in rent in long time — precisely what the Fed doctor ordered.
Tomorrow, we have the PPI inflation report, which is critical because the components of the PPI inflation report filter into the PCE inflation data, which the Fed prefers as its primary inflation metric. They want the PCE inflation data to get toward 2%. We have to remember that shelter isn’t as impactful on the PCE inflation data, but the PCE inflation data has been having 2% handles on the 12-month data for some time now.
How low can mortgage rates go?
We’ll know more after we see the PPI inflation report tomorrow. However, as often noted, we have made significant progress on inflation with no Fed rate cuts and the 10-year yield is still above 4%. It’s critical to break the stubborn level of 4.20% on the 10-year yield if we want to see mortgage rates drop closer to 6.5%.
However, one silver lining this year that isn’t being discussed much is that the spread between the 30-year mortgage and the 10-year yield is improving. This is a good sign and something we discuss on our weekly tracker articles. If the spreads return to normal, mortgage rates would be near 6% or lower today with the 10-year yield. We will address this issue and others in the next HousingWire Daily podcast.
For now, let’s keep our eye on the prize, which is labor data. Jobless claims did come in better today. By now, we all know that the Fed is putting more weight on labor data over inflation. If inflation had driven their full mindset, we would have had cuts already. However, as they have stated, they have kept rates high because the labor market has allowed them to.
Today, let’s call it a victory as the 10-year yield has dropped and is testing that critical 4.20% level. We will see how the PPI inflation data looks tomorrow. However, today’s data should make the Fed feel better because the lagging shelter inflation data is becoming a reality. We have a lot to work with in the second half of 2024, but we are making progress in fighting inflation.
Let’s hope the Fed proves me wrong and does pivot before a job loss recession happens. Either way, making progress on inflation and the labor data getting softer is a more positive trend for mortgage rates in the future.
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