Portland Mortgage Market Update — March 14, 2025

It was inflation week and both the Consumer Price Index and the Producer Price Index beat expectations. As a result, rates…. worsened? Yes, rates have slipped a bit this week despite the headline inflation numbers coming in better than expected. Generally speaking, lower inflation readings should equate to better rates, but in yesterday's PPI report it showed an increase in airline fares and hospital care. Both of the components feed into the Fed's preferred measure of inflation (the PCE report) so the market, for once, looked past the headline and dug into the report to see that these reports might not lead to better rates just yet.

The trade war isn't helping anything either. Fears of tariffs and an escalating trade war have sent the markets into a tizzy (that's a technical term). The Dow is on pace to close its worst week in 2 years, and today's consumer sentiment report came in at a 57.9 vs the expected 64. Anything over 50 means the expansion is still expected, but this is a big miss. The director of consumer surveys at University of Michigan stated "many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one's policy preferences". S

But the Treasury Secretary wants to bring stability back to the housing market. Treasury Secretary Scott Bessent spoke yesterday and while the headlines focus on his dismissing this 3 weeks of volatility to focus on the larger economic picture, he also dropped a few nuggets about the his desire for longer term rates to move lower and to unfreeze the housing market. He could achieve this by using the Treasury General Account (which is currently around double its current levels), instead of issuing debt to pay for things. The General Account is like the government's checking account, and issuing debt is like the government's credit card. By issuing less debt, yields could move lower which would help interest rates.

Next week is Fed week! They likely will not drop rates yet, but there should be some information on their plans to end their balance sheet runoff which would also help rates.