Market Comment
Mortgage bond prices finished the week lower which put upward pressure on rates. We saw larger swings despite few economic releases. Rates worsened considerably to start the week in response to an interview Fed Chair Powell gave Sunday. Powell told 60 Minutes the Fed is wary of cutting rates too soon. He pushed back on the March pivot date that most market participants had expected. Rates recovered slightly mid-week but not enough to recover all the earlier losses. Selling pressure ended the week. The trade deficit was $62.2B as expected. Weekly jobless claims were 218K vs 220K. All three Treasury auctions were solid. Mortgage interest rates finished the week worse by approximately 3/8 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Consumer Price Index | Tuesday, Feb. 13, 8:30 am, et | Up 0.3%, Core up 0.2% | Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Retail Sales | Thursday, Feb. 15, 8:30 am, et | Up 0.1% | Important. A measure of consumer demand. Weakness may lead to lower mortgage rates. |
| Industrial Production | Thursday, Feb. 15, 9:15 am, et | Up 0.3% | Important. A measure of manufacturing sector strength. Weakness may lead to lower rates. |
| Capacity Utilization | Thursday, Feb. 15, 9:15 am, et | 78.8% | Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates. |
| NAHB Housing Index | Thursday, Feb. 15, 10:00 am, et | 46 | Moderately Important. A measure of single-family housing. Weakness may lead to lower mortgage rates. |
| Producer Price Index | Friday, Feb. 16, 8:30 am, et | Up 0.1%, Core up 0.1% | Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Housing Starts | Friday, Feb. 16, 8:30 am, et | 1.47M | Important. A measure of housing sector strength. Weakness may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Feb. 16, 10:00 am, et | 80 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Debt and Deficit
The Federal budget deficit is the difference between what the US Government spends each year and what they bring in. The national debt is the total of all unpaid obligations borrowed by the US Government. The Congressional Budget Office projects the “deficit totals $1.6 trillion in fiscal year 2024, grows to $1.8 trillion in 2025, and then returns to $1.6 trillion by 2027.” Current US national debt exceeds $34T. The CBO notes, “Measured in relation to gross domestic product (GDP), the deficit amounts to 5.6 percent in 2024, grows to 6.1 percent in 2025, and then shrinks to 5.2 percent in 2027 and 2028. After 2028, deficits climb as a percentage of GDP, returning to 6.1 percent in 2034. Since the Great Depression, deficits have exceeded that level only during and shortly after World War II, the 2007–2009 financial crisis, and the corona¬virus pandemic.” The CBO states that “tight monetary policy, reflected in high real interest rates, will continue to dampen economic activity and reduce inflationary pressures.”
The CBO projects the federal funds rate “begins to decline in the second quarter of calendar year 2024.” If they are right, we could see the Fed pivot in May or June.
