Sneak Peek of Next Week: Jobs, Inflation, and Future Fed Rate Hikes

Blog posted On December 06, 2022

Mortgage rates ended last week brushing some of the lowest levels in two months. On Wednesday, Fed Chair Jerome Powell hinted that there’s a strong chance next week’s rate hike could be smaller than the previous hikes of 0.75%. Friday’s jobs reports put a temporary damper on the mood. Overall, rates finished the week strong, but the next eight days will be crucial in determining where they go next. If this all sounds a little bit confusing, don’t worry, we’ll break it down below.

Fed Chair Jerome Powell – Who He Is, Why He Matters

Jerome Powell is the Chair, or leader, of the United States’ central bank – the Federal Reserve (commonly called ‘the Fed’). There are six other board members in the Federal Reserve. Together, they oversee financial and economic stability through three main actions: setting the benchmark interest rate, managing money supply, and regulating financial markets. Pretty much when any of the seven board members comment publicly on the economic or financial state, the bond and stock markets pay extra attention. The markets will often fluctuate up or down when a Fed member ‘opens up’ about what they’re thinking because investors want to prepare for any future financial adjustments the Fed may make.

What Fed Chair Powell Said and Why It Matters

Here is one of the main takeaways the markets heard from Powell’s speech:

“Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down […] The time for moderating the pace of rate increases may come as soon as the December meeting.”

For months, the markets have been waiting to hear news like this. In each consecutive Fed meeting since June (a total of four meetings), they have voted to raise the benchmark interest rate another 0.75% -- a historic number of very large hikes. Many have been wondering when hikes of the size will end. To their delight, Fed Chair Powell hinted for the first time that lower hikes may start next week.

Next Week’s Hike is NOT Set in Stone – All Eyes Are on the Consumer Price Index

While Powell’s comments gave a breath of fresh hope to the markets, they pale in comparison to the importance of next week’s consumer price index (CPI), which will provide data on November’s inflation levels. If these numbers come in hotter than expected, it’s possible that the Fed will strongly consider another 75-basis point hike the next day. The Fed’s main goal with the rate hikes is to get inflation under control. On top of that, inflation is the enemy of bonds, which influence interest rates. If the bond market’s angry, rates go up. Another big set of reports are the jobs reports. In an effort to rebalance the markets, the Fed wants to keep labor participation lower. Which is why the markets got nervous on Friday when the jobs reports came in hotter than expected. But they later calmed down.

What this means for you

The good news is that rates are still thriving from the lower-than-expected CPI report from last month and Powell’s comments last week. Right now, mortgage rates are trending much lower than they were in mid-October. The bad news is that this could all change next week. If inflation is higher than expectations, it’s likely rates will climb again. And whatever happens next week will set the tone for the remainder of the year.

• If you’re considering purchasing later this winter, now might be a good time to lock in your rate
• Should inflation come in below expectations, mortgage rates could have a sharp downward trend again – but this shouldn’t stop you from locking in now because our float down option will let you relock one time at the lower rate
• If you’re still nervous, ask us about our Rate Rebound program – which allows you to lock at the current rate, and should rates drop in the next five years, you can refinance with no lender fees and get a $1,000 credit for other costs

Sources: HousingWire, CFR, Mortgage News Daily, CNBC