Portland Mortgage Market Update — March 28, 2025

A lot to digest this week! While most focus was on today's PCE report, leading up to it we had to watch out for a GDP report and another tariff put in place. Since some components of the PCE report overlap with what is shown in last week's PPI report, the market was anticipating a core inflation reading of 2.8%. Rates spent most of the week in a worsening trend in anticipation of this. Then, when today's report hit confirming that core rate of 2.8%, rates started rallying. So what gives?

Stagflation enters the chat. One component of the PCE report is Personal Spending, which measures consumer spending month over month. This was expected to come in a .5%, but missed the mark at .4%. Adding insult to injury, February's Personal Spending was revised downward from -0.2% to -0.3%. So if consumers are spending less, and inflation is going up it does not bode well for the overall economy. Given the rest of this year's inflation readings are set to replace last year's numbers (which were pretty low), there isn't a lot of room to improve on inflation. So the market may just be accepting the elevated inflation and worried about the greater economy and unemployment.

Speaking of which, next week is jobs week and the expectations have already been lowered. Current estimate for unemployment is an increase to 4.2% from 4.1%, but if you go to the next decimal point it is currently actually 4.14% so a 4.3% reading is a very real possibility. Higher unemployment would usually be good for rates, but a slowing economy with higher inflation and higher unemployment leads to stagflation which would be more or less uncharted waters.