Possible Debt Ceiling Agreement
As investors' concerns about banking issues and debt ceiling negotiations ease, they are moving away from safer assets like bonds, resulting in negative impacts on mortgage rates and pushing these rates to their highest levels since early March.
⭐️ Check This Out
- In the saga of 'how high will they go?' Powell tells us not to worry, the banking sector chaos might save us from further rate hikes.
- Home buyers splurge in April, boosting new home sales by 4.1%; seems like everyone's racing to grab a piece of the American Dream, or maybe just a decent backyard.
- Persistent housing inventory shortages continue to drive up prices, despite dampening demand due to rising interest rates.
- Inflation climbed 0.4% in April and, in true rebel fashion, consumers responded by... increasing their spending. Go figure.
📊 Market Update
The good news first: investors aren't as worried about banking sector woes and the debt ceiling discussions anymore. This shift in sentiment moved them from the safety of bonds to riskier assets, which, unfortunately, wasn't great for mortgage rates. The inflation data wasn't in our favor either, causing rates to jump to their highest since early March.
The Fed uses the PCE price index to track inflation. This April, the core PCE (that's minus food and energy for a less jittery picture) went up by 4.7% year-on-year. That's more than expected and a slight bump from last month's 4.6%. Service costs are rising faster than goods prices. And even though we saw the core PCE peak last September, it hasn't cooled off as quickly as we'd hoped. It's still up by 4.7% annually, the same rate as in November. This is a big deal, primarily because it influences how the Fed's monetary policy maneuvers impact inflation and, subsequently, the financial markets.
In housing, there's been a twist. New home sales increased by 4% from March to April, hitting their best level since March last year and 12% higher than last year. With a severe shortage of second-hand homes, people are looking to buy new ones instead. Plus, the median new-home price dropped by 8% from a year ago, standing at $420,800.
The May 3 Fed meeting minutes didn't shock the mortgage markets. No hints about a potential federal funds rate hike in the June 14 meeting either. They're keeping their options open, taking a wait-and-see approach based on what unfolds. While some officials are worried about slow progress in easing inflation, others believe the effect of tightening already done will take a while to kick in. They're also keeping tabs on the unpredictability surrounding banking issues and debt ceiling negotiations.
A Possible Debt Ceiling Agreement
President Biden and House Speaker Kevin McCarthy have tentatively agreed to suspend the U.S. debt ceiling. This is a big deal because it prevents the country from defaulting on its debts.
The agreement isn't just about the debt ceiling, though. It also includes some compromises to cater to both parties. Republicans got their demanded spending cuts, and Democrats managed to include provisions that expand work requirements for food-stamp recipients and streamline reviews for new energy projects. In addition, the proposed legislation suspends the debt limit for two years, taking us past the next presidential election, and keeps spending flat for 2024, with set limits for 2025.
Just because the agreement has been made doesn't mean it's set in stone. It still has to make it through Congress, and that's far from a sure thing. Lawmakers from both parties have mixed feelings about the deal, so it'll need substantial bipartisan support. House Majority Whip Tom Emmer expects the House to vote on the bill soon, and he thinks most Republicans will back it. After that, it'll go to the Senate, where amendment votes might slow its journey.
Senate Majority Leader Chuck Schumer warned Senate members to be ready for possible weekend votes, hinting that the bill might be passed by the week's end and then sent to President Biden for his signature. But this situation is still evolving, and we'll need to watch for more updates to understand the final resolution.
🗓️ Economic Calendar
Wednesday
- JOLTs Job Openings - A survey done by the US Bureau of Labor Statistics to help measure job vacancies.
Thursday
- ADP Nonfarm Employment Change - a measure of the monthly change in non-farm, private employment, based on the payroll data of approximately 400,000 U.S. business clients.
- Initial Jobless Claims - measures the number of individuals who filed for unemployment insurance for the first time during the past week.
Friday
- Unemployment Rate - measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month.