Portland Mortgage Market Update — February 2, 2024

Once again, the Fed kills the fun in the market. We had been having a pretty nice rally for the past couple of weeks with rates steadily (although marginally) improving. That all came to a screeching halt when Fed Chairman Powell spoke on Wednesday and said he does not think they will have enough support at their next meeting to cut rates at their next meeting. Previous to that mic drop the market was betting a better than 50% chance they cut their first rate in March. Now there is an 80% leaning towards the Fed keeping rates the same in March.

Why wouldn't they cut rates? Isn't inflation getting better? Yes, all indicators show that inflation is improving and trending towards their 2% goal. And we know that the US economy is like a cargo ship where you have to start steering it well before you get to where you are going. However, the concern of the Fed now is the rest of the economy is still so strong that if they were to start to cut rates inflation would be akin to stoking a fire that had been almost smothered but still had plenty of fuel—it would just spring to life again. So they need to depress the rest of the economy enough to be sure inflation doesn't roar back to life once they do start cutting rates, and that is why today's Jobs reports were such a gut-punch…

What happened with today's employment reports? The market was expecting the numbers to come in at a +180K, and it came in almost double that at a +353K. The market saw this and triggered a selloff which hurt rates. But if you dig a little deeper into the report these numbers are being elevated by the seasonal adjustment, which accounts for the variances to the labor force "due to seasonal events including changes in weather, harvests, major holidays, and school schedules". To me this sounds pretty arbitrary, and without the seasonal adjustment the numbers show a LOSS OF 2.635M non farm jobs in January. This report is based on a survey of businesses, and they actually do a household survey which showed a loss of about 31K jobs among the participants. But the market is running with the big +353K number for now until it digests this and sees that the employment picture is not as rosy as it initially seemed.