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Market Analysis 12.5.25: PCE Released

Good Friday morning from your Hometown Lender,

Today’s market analysis: Rates starting the day off about the same as yesterday. The inflation data (PCE) released today which is extremely important for next week’s Fed meeting, is also from September. It is so stale it has mold on it, nonetheless it came in at expectations. Consumer sentiment data released was a bit stronger than expected but I don’t put too much emphasis on that report for the moment. Odds for a Fed cut next week are close to 90%. I feel vindicated. Things will likely continue to be pretty calm ahead of the Fed meeting next Wednesday however, keep in mind that it is now 5 for 5. The last 5 Fed cuts have been met with worse rates after the announcement. Lock before the meeting.

And on the topic of yesterday’s surprising unemployment claims data, Dr. Elliott Eisenberg shared the following which is very interesting:

“Don’t be fooled by the initial jobless claims data, because companies are reducing employment without layoffs. Businesses are closing positions that become vacant. So, while there may not be a “firing cycle,” there is indeed an “attrition cycle” amongst us. This is why the backlog of continuing claims for unemployment keeps making new cycle highs, and why the ranks of the long-term unemployed keep expanding.”

Market analysis from a higher level:

Snapshot (as of ~11:00 a.m. ET / 8:00 a.m. PT)

  • 10-yr UST: ~4.10–4.13% (holding the 4.0–4.2% channel). TradingView+1
  • 30-yr mortgage averages: 6.19% (Freddie PMMS, 12/4). Daily tracker reading ~6.33% this morning. Net takeaway: mid-6s remains gravity. Bankrate+3Freddie Mac+3Freddie Mac+3

Market analysis: fresh data & why markets care (today)

  • PCE (Sept, catch-up release): Headline +0.3% m/m, +2.8% y/y; spending +0.3%. This is the Fed’s preferred inflation lens; the print was tame and in line, reinforcing a “soft-ish” disinflation trend into year-end. Reuters+2Bureau of Economic Analysis+2
  • Jobless claims (yesterday): 191k, the lowest since 2022—holiday distortions likely, but headlines lean “labor still firm.” Bonds largely faded the pop. Reuters
  • ISM Services (Wed): 52.6 overall; employment 48.9 (soft) while prices stayed elevated—classic “slow growth + sticky services prices,” which can cap how far long rates rally. Institute for Supply Management

Political & policy currents that actually touch rates

  • Government funding: CR passed; agencies are back, but some October releases never happened (e.g., CPI, payrolls). Next “clean” labor/CPI prints land after the FOMC, so the Fed is flying with less visibility. Appropriations Committee GOP
  • Energy: OPEC+ kept output steady into early 2026; November output slipped on outages—oil pressure looks contained → mild disinflation tailwind for headline prints. Reuters+1
  • Global spillovers: BOJ officials are openly entertaining a December hike; Japan’s 10-yr near cycle highs keeps global term premia from melting. U.S. impact is modest but directional. Reuters+1
  • Fed balance sheet (effective Dec 1): The Fed stopped Treasury runoff (rolls UST maturities) but continues MBS runoff while reinvesting MBS paydowns into T-bills—good for funding-market liquidity, but it doesn’t directly tighten mortgage spreads overnight. Federal Reserve+1

Market analysis: Fed Watch (Dec 9–10)

  • Odds: Markets price roughly ~85–88% chance of a 25 bp cut next week; several bulge-bracket desks flipped to a cut this week. Expect dovish action + cautious guidance given patchy data. Reuters
  • Rates translation: A cut hits short-rate products first (HELOCs/ARMs). Fixed mortgages still key off 10-yr UST + MBS spreads; without MBS buying, spread compression is a slow thaw, not a cliff-drop. Federal Reserve

What this means for mortgage pricing (plain talk)

  • Base rate driver: As long as the 10-yr holds ~4.0–4.2%, retail sheets cluster around mid-6s. Soft PCE today encourages the low end of that range; any BOJ- or oil-driven backup leans the other way. Reuters+3TradingView+3Bankrate+3
  • Spread story: With MBS still in runoff, lenders won’t price like 2020–2021; expect incremental improvements on rallies rather than dramatic gaps tighter. Federal Reserve

Market analysis: scenarios into the FOMC

  • Bullish for rates (better pricing): Today’s PCE stays the narrative, ISM Services prices cool further, and next week’s auctions get solid demand → 10-yr drifts toward 4.0%; modest MBS tailwind. Institute for Supply Management
  • Bearish (worse pricing): BOJ telegraphs a bigger December hike or oil reverses higher; Treasury supply tails → 10-yr leans back toward 4.2%; lenders defensive. Reuters+1

Market analysis: lock vs. float (decision framework — not a prediction)

  • Lock now if you’re inside 15–20 days, tight on DTI/cash-to-close, or you can’t absorb a hawkish-sounding Fed press conference even with a cut.
  • Cautious float if you’re ≥30 days out and can auto-lock on any MBS-friendly move (e.g., 10-yr testing ~4.00% or post-FOMC rally).

What it means (buyers • agents • homeowners)

  • Homeowners: If your note is ≥7%, rate/term can pencil; cash-out remains case-by-case given pricing tiers and equity goals. Benchmark public lines to PMMS 6.19%. Freddie Mac
  • Buyers: At ~6.2–6.3% averages, every 0.05–0.10% still moves DTI. Pair seller credits with 2-1/1-0 buydowns to secure payment while spreads thaw. Freddie Mac+1
  • Agents: Use payment ranges, not single-point quotes, through the Fed meeting. “Soft PCE + steady oil” is your talking point for weekend tours. Reuters+1

Stay safe, enjoy the weekend, and make today great!