End of the Year 2024

This week we saw mortgage rates pushing to the highs of the year that were seen in July.

Freddie Mac’s average interest rate was 6.85%.  As we discussed last week, the expectation of slowing rate cuts from the Federal Reserve (“the Fed”) took some wind out of the sails of interest rates. There is still solid demand for U.S. Treasury debt. This is a good sign for future lowering of rates. The Treasury auctioned $211 billion in notes this past week. It met with very strong demand.

This commentary previously discussed the market’s fear of inflation coming from the rhetoric surrounding possible tariffs being imposed on other countries.  

There is a great deal of uncertainty around this topic with markets wondering if this is just part of negotiation posturing and what is likely to actually be implemented. Inflation produced from any tariff is likely to be of concern with the bond and rate markets. Remember that inflation is the arch-nemesis of interest rates. If money devalues over time (inflation), investors and lenders need to make a higher interest rate to end up with the same value in money at the end.

Unemployment rates will be in the Fed’s eye moving into the next year. 

We have explored the concerns with the statistical improbability regarding the Bureau of Labor Statistics (BLS) releases this year. They clearly haven’t matched up to other reports like the BLS’s own Quarterly Census data and also ADP’s private sector data. We will be watching carefully over the next months and quarters to see if the expected negative employment data starts to filter in. This negative information will be fuel to allow the Fed to continue to cut rates. 

Looking Ahead: 

Next week is the start of the New Year but also has a couple important economic reports:

• Monday: Pending Home Sales report
• Tuesday: Case-Shiller Home Price Index; Markets close at 2 p.m. EST for the holiday
• Wednesday: Markets are closed for the holiday
• Thursday: Initial Jobless Claims
• Friday: Institute for Supply Management (ISM) Manufacturing index

Let’s hope the rate markets can get some good news next week and reset their trajectory lower. This wasn’t a fun week for rates!