Overview: Over the past week, the focus was on troubles in the banking sector, while the release of some of the most significant economic reports of the month caused little reaction. Due to the banking concerns, investors shifted to safer assets, causing mortgage rates to decline sharply.
The failure of two U.S. banks caused mortgage rates to drop for a couple of reasons. First, it raised questions about what problems might emerge in other areas of the financial system. During periods of increased uncertainty, investors shift to relatively safer assets such as bonds, including mortgage-backed securities. In addition, investors expect that banks will raise their lending standards, making it more difficult for companies to obtain loans. This would slow economic growth and reduce future inflationary pressures, which would be positive for mortgage markets.
The latest Employment Report contained mixed news. After the economy added a massive 517,000 jobs in January, February saw continued strong gains of 311,000, above the consensus forecast of 225,000. The unemployment rate unexpectedly rose to 3.6%, up from 3.4%, which was the lowest level since 1969. Average hourly earnings, an indicator of wage growth, were 4.6% higher than a year ago, high by historical standards, but below the consensus forecast for an annual rate of 4.8%.
The core Consumer Price Index (CPI) is a closely watched inflation indicator that excludes the volatile food and energy components to provide a clearer picture of the longer-term inflation trend. Core CPI in February was up 5.5% from a year ago, close to expectations. While this is well below the peak of 6.6% in September, it remains far above the readings around 2% seen early in 2021, which is the stated target level of the Federal Reserve. There has been a large spread between different components of the index. For example, food prices were 10% higher than a year ago, while used vehicle prices were 14% lower than last year at this time. Consumer spending accounts for over two-thirds of U.S. economic activity. After an enormous surge of 3% in January, retail sales fell a bit in February, as expected. Consumers pulled back on purchases at restaurants, auto dealerships, and department stores, while they spent more on necessities such as groceries.
Job Gains (thousands)
Week Ahead
Looking ahead, the next Federal Reserve meeting will take place on March 22. Investors will be looking to see how the Fed addresses the troubles in the banking sector and whether they will pause in tightening monetary policy or raise rates by another 25 basis points. Before that, the next European Central Bank meeting will take place on Thursday, and their banking sector troubles will also be a major issue. For economic reports, the New Residential Construction report (also known as Housing Starts) will be released on March 16, and the Existing-Home Sales report will be released on March 21.
コメント