Good morning on this best day of the week Wednesday, from your Hometown lender,

Rate sheets should continue to improve today, although the mini rally in bonds is showing signs of losing steam. Retail sales numbers were stronger than expected. The big move in sales is attributed to consumer pulling forward purchases (mostly autos and electronics) ahead of tariffs. That of course begs the question of what will happen to retail sales in the coming months and what will you have to pay for a new or used car as the amount of inventory has dropped. Where there was 90+ days of inventory on auto lots just 30 days ago, that number has dropped to just 70 days. Capacity Utilization was weaker than expected so we still have some slack in the markets.

The markets didn’t react to either Retail Sales or Capacity Utilization. 

Economic concerns are mounting around the resilience of the U.S. consumer, who appears increasingly ill-equipped to absorb the pass-through effects of rising tariffs. Early 2025 data suggest a slowdown in spending growth, with personal consumption unlikely to contribute meaningfully to GDP this quarter. This dynamic, coupled with rising import prices, points to a demand-driven recession risk. The (toxicity uncertain) situation escalated further with reports that China has instructed its airlines to halt Boeing deliveries in retaliation for steep U.S. tariffs.

Markets will be listening to Fed Chair Jerome Powell’s speech this afternoon (1:30pm ET) at the Economic Club in Chicago followed by a moderated discussion. Powell is sure to hear more questions about tariffs, inflation, and what the Fed will do. I fully expect Powell to reassert his plans to keep rates steady. That may not work in the bond markets favor but we will see.  

Early signals so far are that any breakthroughs in the trade war with China will see bonds rally along with stocks, which would help mortgage rates fall lower. Some news this morning leaked out of China that the Chinese government would come to the table to talk if some conditions are met, and bonds seemed to like the news for some early gains before drifting lower again.

Rates are likely to drift between the mid 6’s and low 7’s a bit longer.

Keep in mind that the 10-yr yield spent most of March around the 4.30ish mark as it is now, and rates were generally only a bit better than today’s rate sheets. We of course will remember the best days of April, after the tariffs were first announced, and will want to see rates fall back to those levels. However, it is unlikely that will happen without significant signs that the economy is truly weakening, and that unemployment is rising.