01/06/2023
Wage Growth Slows
After two years of exceptionally low mortgage rates, a major change took place in 2022. To help support economies during the pandemic, global central banks and governments flooded the financial system with money, which eventually caused inflation to surge. To bring inflation back under control, central banks had to aggressively tighten monetary policy last year, causing mortgage rates to rise. After starting the year below 3.50%, mortgage rates nearly doubled, before easing a bit during near the end of 2022.
The Federal Reserve stll has a firm commitment to restrict monetary policy in order to hold down inflation and revealed that no officials expect any federal funds rate cuts in 2023. However, the did indicate that it will take some time to gain confidence that inflation was on a sustained path to their target level of 2.0%. While both officials and investors anticipate possible additional rate hikes early in the year, there is some that believe the Fed will begin cutting rates late in the year due to slower economic growth.
With Fed officials closely watching for labor market tightness to ease, the economy gained 223,000 jobs in December, the smallest monthly increase in two years. Average hourly earnings, an indicator of wage growth, were 4.6% higher than a year ago, far below the consensus forecast of 5.0% and the lowest level since August 2021. The unemployment rate unexpectedly fell from 3.6% to 3.5%, matching the lowest level in decades. Investors focused mostly on the surprising earnings data, and since slower wage growth reduces inflationary pressures, this report was favorable for mortgage rates.
