Portland Mortgage Market Update — December 20, 2024

Happy almost end of the year! Here is this week's market update.

I predicted this week to be volatile, and boy was I correct. It was Fed week and while they did cut their interest rate another 25 basis points (.25%), it almost seemed like they did so begrudgingly. In the previous rate cut, there was one person who dissented, and at this meeting there was a new dissenter (more on them later). They also released their Dot Plot chart where each member votes or provides their forecast on how many rate cuts they see coming in the next 12 months. The results of the chart show most of the Fed believes there will only be two cuts in 2025, down from the previous chat which estimated 4 cuts. The market TANKED as a result and rates spiked to levels not seen since last June (low to mid 7's)

Inflation to save the day? Part of the run up in rates the past couple of weeks has been fears of inflation rearing its head again. The CPI and PPI released last week came in a little hotter than expected which put upward pressure on rates. Then today, out of left field, the PCE report came in and gave both of those reports a taste of the back of its hand. It showed inflation only increased .1% in November, which was better than the .2% estimate. Since this is the Fed's preferred measure of inflation, rates are enjoying a little bit of a rally right now. If we can hold on to this rally going into next week there is a lot of room for improvement when looking at the technical charts.

But back to the Debby Downers of the Fed. The past two meetings have had two separate dissenters. Last meeting it was Michelle Bowman, who I have mentioned before and is a governor on the Fed Board. Her background is as a lawyer who helped run her parent's bank. This meeting it was Beth Hammack, President of the Fed Bank of Cleveland since August of this year. Prior to this role, she was on the short list to become a CEO at Goldman Sachs, so at least she has a formal background in economics. Hammack stated "Based on my estimate that monetary policy is not far from a neutral stance, I prefer to hold steady until we further evidence that inflation is resuming its path to our 2 percent objective: and that "monetary policy will need to remain modestly restrictive for some time". To counter this, the NY Fed President who is the de-facto authority on what a neutral policy is believes we are still about 3 rate cuts from becoming neutral.