A Glimpse Into the Future

November 15, 2021

Orion knows our brokers are always talking to your clients about the economy and the direction of mortgage rates. After all, jobs and housing drive our economy, and one of the biggest questions facing the markets over the next 12 month is how much slack is in the labor market, how quickly will it be absorbed, or if there is any slack. The answer will determine whether inflation proves transitory or not, and whether the Fed “lifts off” in 2022 and starts raising rates.

 

A portion of analysts expect the unemployment rate to decline to 3 percent by the end of 2022, creating the tightest labor market since the 1950s. This means that wage pressures are unlikely to ease, and will take over as a dominant inflation driver in the second half of next year. But if this proves to be the case, will inflation stifle growth, and prove self-defeating? Probably not. Low-income households are most exposed to rising prices, but it is thought that they have the capacity to absorb them, both due to ample savings and rapid wage growth. And businesses may respond to the persistent product and labor shortages by expanding capacity.

 

That said,with inflation pressures mounting, our brokers can expect the Fed to respond by accelerating the taper at the December meeting, and finishing in March. This will make room for two hikes next year, most likely in September and December. Rates, and markets in general moved based on surprises, so anything more rapidor slower is likely to move mortgage rates.

 

The highlight of this week's data calendar is going to be the October retail sales report on Tuesday. The expectations are for a very strong number, with the headline up over 2 percent and ex-autos up over 1 percent. Expect all of the major spending categories to be strong in October, including auto sales which may be up for the first time since April! Buyers are shopping early for the holidays to avoid inventory shortages, so some future spending is going to be pulled forward.

 

As always,there is a lot going on with our economy. But regardless of where rates go,Orion continues to offer fine products, pricing, and service to our brokers so that you can help your clients!


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