Mortgage rates ticked up this week, the first weekly increase of the year, as the market jockeys for position ahead of next week’s updates on monetary policy and the labor market.
The end of China’s zero-Covid policy, lower inflation in Europe and in the U.S., and evidence of enduring labor market strength all suggest that the risk of a recession may be waning. The improving conditions – and perceived reduced risk of an accelerated pace of benchmark interest rate hikes – have helped mortgage rates fall steadily to begin the year. But while the Federal Reserve appears set to slow rate hikes, lower risk of recession limits how far interest rates are likely to fall. All that said, the outlook for rates remains cloudy. Indeed, data released this week from the Conference Board and the S&P Global Flash US PMI Composite Output Index suggest that a recession is still very much a possibility. Investors will be keeping a close eye on the PCE price index, the January jobs report, and the Fed – as the FOMC meets next week – for more clarity on the state of the economy and the central bank’s plans.
More evidence of weakness in leading economic indicators would help to resume the downward pressure on mortgage rates.