Second reading on Q4 GDP came in weaker than expected and bonds popped up on the news, but have since slid back a bit. The rest of the data was pretty much in line. Let’s see how the rest of the day comes together. Tomorrow brings a bunch of important reports. The biggest of which is the Fed’s favorite inflation metric: the PCE (Personal Consumption Expenditures). Market is looking for a print of 4.9 annually and .5 monthly. If you are watching anything, watch that. Higher readings will hurt. We also get Personal Income numbers and Personal Spending as well as new home sales and Consumer Sentiment. Here is the playbook: right now, we sit at 3.91 on the ten-year. Strong data tomorrow seta us up for 4.10 on the ten-year. Weaker data brings us down into the 3.70’s. Tough gamble and right now, it is a gamble.
Both FHA and VA have adjusted their programs.
FHA is reducing its mortgage insurance factor as of 3/20 and VA is reducing it’s funding Fee as of 4/7. New tables below for your enjoyment:
The WSJ:
One in four Americans aged 25 to 34 lived with parents or older relatives as of 2021, the fastest-growing segment in multigenerational households, according to data from Pew Research Center. The move is often driven by changing attitudes about family life, high housing costs and challenges in finding affordable child care, researchers said. The pendulum will swing back to the other side shortly and household formation will increase. Where though, will everyone live? We don’t have enough homes…
And a different spin on rates from Bloomberg:
There are a bunch of different ways that benchmark interest rates affect the average person, but perhaps the most visible (other than through mortgage rates) comes via the rate of return on your savings account. At the moment, the average interest rate on US bank accounts is just 0.23% according to Bankrate.com, which is a lot lower than benchmark rates that now sit at 4.5-4.75%. So why the discrepancy? Aren’t banks supposed to raise their savings rate as the Federal Reserve hikes?
Deposit rates usually do go up during tightening cycles — it’s just a question of how fast. That’s because banks typically begin tightening cycles with lots and lots of deposits, which means they’re not really in any rush to try to get more. As customers start moving their money into alternative higher-yielding products (like money market funds), banks begin to raise their rates to replace lost deposits. The tendency for bank deposit rates in a rising rate environment go up like a feather, and in an interest rate cutting environment where the Fed is easing policy, they sink like a stone, that’s been a phenomena for decades.
But there is an argument to be made that the relationship between benchmark rates and bank deposit ones has been weakening in recent years. One explanation for this has to do with quantitative easing, which has resulted in banks holding more deposits than ever before — meaning they’re not really in a hurry to compete for more. Banks increasingly, especially the larger domestic institutions, they’re not competing specifically on explicit interest. Rather than compete on interest rate, they compete on price services. So banks haven’t been raising interest rates because they haven’t really needed to. They still have plenty of deposits sloshing around and big clients are more likely to respond to extra services and high-touch offerings than a measly extra basis point or two. That’s not going to be any comfort to people earning 0.23% on their savings, but it goes some way toward explaining the frustratingly slow way in which Fed hikes are passed on.
Please remain safe and stay healthy, make today great!
