01/27/2023
There were no significant surprises in the major economic data released this week. As a result, mortgage rates ended nearly unchanged.
In December, core PCE was up 4.4% from a year ago, matching expectations, and at the lowest annual rate since October 2021. However, this remains far above the Fed's target level of 2.0%. This is particularly relevant because how quickly their aggressive monetary policy tightening will bring down inflation has enormous implications for financial markets.
During the fourth quarter, GDP rose at an annualized rate of 2.9%, slightly above the consensus forecast, but down from 3.2% during the third quarter. Strength was seen in consumer and government spending, while residential investment (housing) remained a major source of weakness. Due to tighter monetary policy, early forecasts are for GDP growth to continue to weaken in 2023.
In housing news, sales of new homes rose slightly in December, matching expectations, but it was a tough year. Due to rising prices and higher mortgage rates, new home sales in 2022 dropped 16% from 2021. The median new-home price of $442,100 was 8% higher than last December.
There will be two extremely important events next week. The Fed meeting will take place next Wednesday, and a 25 basis point increase in the federal funds rate is expected. Investors will look for guidance on the magnitude of future rate hikes and bond portfolio reduction. The key Employment report will be released on Friday, and these figures on the number of jobs, the unemployment rate, and wage inflation will be some of the most highly anticipated economic data of the month. In addition, the ISM national manufacturing sector index will come out on Wednesday and the ISM national services sector index on Friday.
