A Quick Reminder: The Fed Rate Isn’t the Same as Mortgage Rates

Market Update: What’s Happening with the Fed, Retail Sales, and Mortgage Bonds

Fed Outlook and Market Sentiment
After Fed Chair Jerome Powell’s recent speech, markets are holding onto the possibility of a rate cut at the December 18 meeting, but there’s no certainty. Powell, along with other Fed officials, hinted at the potential for lower rates down the line, though it’s not a “lock” for December. The key indicator? The November jobs report, releasing on December 6, which could influence the Fed’s final decision.

Mortgage Rates Movement: September 2024 to Today
Since September 2024, mortgage rates have fluctuated notably. We’ve seen rates move up from lows earlier in the year as economic data has been stronger than expected, keeping inflation slightly warmer than the Fed would like. As of now, rates are higher than they were just a few months ago, reflecting a combination of market reactions to economic data and the Fed’s ongoing stance on interest rates. However, this doesn’t mean we’re locked into these higher rates for the long haul, as market conditions can shift quickly with new data and Fed guidance.

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A Quick Reminder: The Fed Rate Isn’t the Same as Mortgage Rates
It’s a common misconception that when the Fed raises or lowers rates, mortgage rates move directly with them. In reality, mortgage rates are influenced more by broader economic factors and investor expectations. The Fed rate primarily affects short-term interest rates, like those on credit cards and certain loans. Mortgage rates, on the other hand, are tied more closely to the 10-year Treasury yield and bond market conditions. This means that, even if the Fed does cut rates, mortgage rates may not drop in tandem—and vice versa.

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October Retail Sales Performance
October’s retail sales report showed a 0.4% increase—slightly better than expected. Stripping out autos and gas, however, sales only rose by 0.1%, slightly weaker than anticipated. While last month’s figures got revised higher, the crucial Core Retail Sales, which impacts GDP, actually dipped by 0.1%. Overall, revisions to past data made this a mixed but somewhat stronger report than expected.

Key Data to Watch Next Week

• Monday: NAHB Housing Market Index for November
• Tuesday: October Housing Starts & Permits
• Thursday: October Existing Home Sales

Technical Analysis on Mortgage Bonds
Mortgage Bonds are in a downward trend, testing support levels around the 38.2% Fibonacci retracement level. A break below could open more room for a drop. The 10-year Treasury is also flirting with resistance around 4.5%. For those of you watching the mortgage rates, stay cautious as bonds are close to a significant support line.

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