Federal Reserve Chair Jerome Powell, in a post-FOMC meeting Wednesday, said he intends to stay at his post until a successor has been confirmed, adding that he will remain on the Fed board until a Justice Department investigation into him is concluded.

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Mortgage rates got hit 3 times on Wednesday, with the net effect being a move back up to the highest levels in several months. The average lender isn’t quite as high as they were last Friday, but after late-day “reprices” many are fairly close.  The least of the bond market’s concerns (bonds dictate rates) was this morning’s inflation data. The Producer Price Index (PPI) was higher than expected on multiple fronts, including those that translate directly to higher consumer prices in the more robust PCE inflation data that comes out on April 9th. Higher inflation = higher rates, all else equal.  Inflation also figured into the morning’s other development: a renewed surge in oil prices. Granted, it’s not as big as some of the recent spikes, but as crude jumped roughly $6 per barrel, bond yields followed with a strong correlation. The 3rd market mover was also inflation-related, but this time in the form of Fed comments. Fed Chair Powell’s characterization of inflation progress left the market feeling hopeless regarding potential rate cuts any time soon. As always, it is the market’s rate cut expectations that actually correlate with interest rate movement (whereas actual Fed rate cuts are old news by the time they happen).  Today’s post-Fed press conference resulted in financial markets moving expectations for the next rate cut out to April of 2027. A day ago, the market saw no chance of a rate HIKE at the next Fed meeting. Today, it’s nearly 5% (not high, but a notable shift nonetheless).

Bonds Weren’t Prepared For Fed’s Inflation Fears

If anything, you’d think the market would have been pricing in a hawkish Fed day, given the run up in energy prices. But Powell threw reporters a curve ball during the press conference and instead placed the focus on other categories of inflation that were under the microscope before the energy price spike (like core goods and non-housing services), saying there’d been less progress than hoped. The takeaway was that rate cuts are on hold for the foreseeable future. The market agrees, as it is now pricing the next rate cut at more than a year in the future. Bonds were already losing ground on oil price spikes (and PPI to a lesser extent). The net effect took yields back near recent highs and hit MBS for almost half a point.

Econ Data / Events

Core PPI m/m (Feb)

0.5% vs 0.3% f’cast, 0.8% prev

Core PPI y/y (Feb)

3.9% vs 3.7% f’cast, 3.6% prev

PPI m/m (Feb)

0.7% vs 0.3% f’cast, 0.5% prev

PPI y/y (Feb)

3.4% vs 2.9% f’cast, 2.9% prev

Market Movement Recap

08:32 AM Slightly weaker after PPI data. MBS unchanged after being up a few ticks and 10yr up .8bps at 4.207

09:16 AM additional weakness with oil prices spiking.  10yr up 2.8bps at 4.227 and MBS down more than an eighth of a point

02:12 PM modestly stronger after Fed announcement. MBS still down 3 ticks (.09) and 10yr up 1.5bps at 4.214

02:57 PM MBS are now down 9 ticks (.28) and 10yr up 5.3bps at 4.253

04:13 PM Weakest levels. MBS down nearly half a point and 10yr up 6.6bps at 4.266

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