The Federal Reserve held firm on its current interest rate levels after its latest meeting, but inflation numbers are leading to talk of potential action in third and fourth quarters.

Lenders including The Loan Store, Movement Mortgage, Bayview Asset Management and Saluda Grade are already using Figure Connect, the company said.

The Federal Reserve chair said a rate cut would not solve the underlying issues driving up shelter costs, even as housing becomes a disproportionate driver of inflation.

Massive CPI Rally Cut in Half After Fed Announcement

As discussed in the AM commentary, bonds rallied sharply after this morning’s CPI data (unrounded core monthly inflation at .163% versus a 0.3% forecast).  Those gains held up uneventfully until the Fed festivities began.  The most significant item on the Fed agenda was the dot plot at 2pm which showed the median outlook for 2024 rate cuts falling to “one” from “three.”  Fed Chair Powell offered no dovish reassurances in the press conference, nor was he even very enthusiastic about this one month of data.  All of that was to be expected, but markets nonetheless acted like they expected at least a little token of rate rally affection.  By 4pm, about half of the CPI gains had been erased, but that’s still a solid day in the bigger picture.

Econ Data / Events

month over month core CPI

0.2 vs 0.3 f’cast, 0.3 prev

Annual core CPI

3.4 vs 3.5 f’cast, 3.6 prev

Market Movement Recap

09:29 AM sharply stronger after CPI data and holding gains so far.  10yr down 15bps at 4.271.  MBS up over 3/8ths in 6.0 coupons and nearly 5/8ths in 5.5 coupons

12:37 PM Sideways to slightly stronger at best levels.  10yr down 14.6bps at 4.257.  MBS up half a point.

02:31 PM Two-way trading after Fed’s dot plot (announcement was unchanged, basically).  Initial weakness, but bouncing back as the press conference gets underway.  10yr down 13.3bps at 4.268.  MBS up 14 ticks (.44).

03:26 PM MBS are now up “only” 10 ticks (.31) in 6.0 coupons and 14 ticks (.44) in 5.5. coupons. 10yr yields are down 8.9bps at 4.311

04:02 PM Another few ticks of weakness.  MBS still up a quarter point, but about halfway back to pre-CPI levels.  10yr still down 7bps at 4.33.

It was an incredibly high consequence day for the bond market and, thus, mortgage rates due to the confluence of two extremely important events. The first event was the monthly release of the Consumer Price Index (CPI), which is one of the two economic reports with the far more power to influence interest rates than any other.  The other report is the big jobs report that came out last Friday.  As much as the jobs data hurt, today’s CPI helped.  It brought the average top tier 30yr fixed scenario down under 7.0% by a hair–one of the biggest single day drops in months. The good times lasted, but they got less good after the afternoon’s Fed announcement.  To be precise, it wasn’t the announcement itself, but rather the Fed’s updated rate projections that did most of the damage.  After the last round of projections (in March) showed 3 rate cuts in 2024, today’s only showed 1.  This wasn’t too terribly different from what the market expected, but it was slightly more conservative than hoped.   At the very least, traders didn’t find anything in the projections nor in Fed Chair Powell’s press conference to suggest that the good times should keep on rolling after already having been so good in the morning hours.  Bonds ultimately retraced about half of their gains and several mortgage lenders had announced late-day rate increases by 4pm Eastern Time.   Lenders who didn’t bump rates a bit higher this afternoon would need to account for the bond market movement in tomorrow’s rate offerings, assuming the bond market doesn’t move too much overnight or early tomorrow morning.

The Federal Deposit Insurance Corp. sued 15 lenders on loans brokered through Washington Mutual that were included in securitizations before the bank’s 2008 failure.

The instant buying platform has been hit hard by the market’s slowdown and sold 847 homes in the first quarter, down 47% from the same time last year.

The proposed class action suit claims the fintech lender purposefully pushed customers applying for HELOC loans into higher rates, or misrepresented rates at the beginning.

Fifteen million Americans who owe a combined $49 billion in medical debt would benefit from a proposal by the Consumer Financial Protection Bureau to scrub medical debts from credit reports and ban their use in underwriting decisions.

The department will continue to monitor developments from a recent court settlement as it considers future rulemaking.