Portland Mortgage Market Update — March 22, 2024

The Fed meeting loomed large this week and unsurprisingly they did not change rates. No one was expecting them to this time around, but everyone was very curious as to what they would say about the economy at large. Overall, the market liked what they had to say despite inflation appearing to stall out, and rates improved back down to the high 6's as a result.

If inflation isn't going to hit 2% anytime soon, how did rates take that as good news? First let's discuss why it looks like the 2% mark is going to be tough to hit. The 2% inflation reading the Fed has been targeting is based on the Consumer Price Index, which (if you have been following along) is a calculated by adding each monthly inflation reading for the past 12 months. So next report will replace the reading form March 2023 (which was an increase of .1%), April 2023 was .4%, May 2023 was .1%, June .2%, and July .2%. Aside from April, these are very good readings that are helping lower the current overall CPI number, and with recent reports trending higher than expectations it is unlikely that future numbers will be lower than these readings. As a result, the overall CPI number may stall for a bit through the summer time and not quite hit their 2% goal until later this year.

That being said, the Fed did indicate that their current Quantitative Tightening cycle may be coming to an end. Fed Chair Powell said it would be appropriate to begin slowing the pace of their balance sheet reduction "fairly soon". That means more liquidity in the market and lower rates. Also, the Fed released their quarterly dot plot chart where they still indicated they are anticipating 3 rate cuts in 2024 and more of them are anticipating higher unemployment than they were in their last chart. This indicates that while inflation is still the primary goal, other factors such as unemployment may be a trigger for when the Fed decides to start lowering rates.