The Economy: Hard to Argue with the Numbers

September 19, 2022

Last week’s inflation data confirmed to Orion’s brokers that the Federal Reserve, through the actions of its Federal Open Market Committee, has more work to do before it can consider pulling back its aggressive monetary stance. What does that mean for mortgage rates?


While consumer spending is moderating, it is not enough to eliminate price pressures broadly across the economy. Consumers expectations of future inflation have eased, however, which helps to mitigate the concern they would pull forward future purchases, thus adding more upwards price pressure. Orion’s brokers know that psychology plays a large part in the decisions made by individuals, families, and corporations,and nervousness or optimism easily impacts the overall economy. This includes, of course the decision to purchase a home, refinance an existing home, or continue renting.


Despite the average person’s views of future inflation, retail sales are roughly 8 percent above their pre-pandemic levels as of August and many inventories are still not fully restocked. Remember how the large ship being stuck in the Suez Canal in Marchof 2021 led to world-wise supply-chain issues? Fortunately, a shutdown of the freight rail system in the United States was avoided as it is estimated it the supply chains impacts would have cost the economy nearly $2 billion per day. We certainly don’t need that.


Returning to more economic numbers that give brokers an idea as to economic direction, manufacturing rose 0.1 percent in August as a result of in adequate supply and in some regions of the country manufacturing is already seeing a contraction. Remember:generally speaking, a recession leads to lower long-term rates.


Following the inflation data, the markets adjusted their expectations for more interest rate increases through the end of the year. The Federal Reserve's battle to combat inflation will dominate the conversation this week with the Federal Reserve holding a two-day meeting to set policy. Expectations are high that the FOMC will fire off a full point rate hike at the meeting after the consumer price report for August came in hotter than anticipated. Some are now expecting an overnight Fed Funds rate range of 4.50% to 4.75% by February of 2023 before inflation is expected to cool rapidly. Fortunately, as brokers know, the overnight Fed Funds, pegged by the Fed, are not the same as 30-year mortgage rates, which are determined by supply and demand and investor pricing.

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