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Here’s what we’ve got for you today:

1. Fed Coffee Corner - Fed Press Conference March ☕

By the way, this article on Dot Plot Predictions is the most clicked link in this newsletter, you should check it out if you are interested.

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[Read Time: 3-4 min]

Rates Today 📉

This week should be one of the calmest of the year- do not expect much movement in the market. The bond market will see a half day on Thursday and will be closed Friday for Easter Weekend.

There is also little to no economic news that could move the needle this week.

Fed Coffee Corner - Fed Press Conference March ☕

The dust has finally settled from the Fed Meeting on Wednesday and the bond market saw positive gains on Thursday and Friday. As I wrote in the post leading up to the meeting - all eyes were on the Dot Plot.

Here’s what we found out -

1. Fed still forecasts 3 cuts in 2024

2. Longer-run rates have forecasted a higher floor

3. We are at the peak of this cycle

#1 Fed Still Forecasts 3 Cuts in 2024 ✂️

Personally - this was my most surprising takeaway. I fully expected the Fed to tell us that they were revising their expectations to just two cuts in 2024.

But the dot plot shows there are still plans to have three quarter-point (.75) rate cuts in 2024. 

We saw a rally in the bond market Thursday and Friday - I think this news was a big reason for that.

What does that mean for mortgage rates?

It means that we could see the first cut soon.

The next Fed meeting is in 37 days (May 1). Unless there are extreme outliers in the data showing a halt in the economy, don’t expect a cut then.

The following meeting is June 12th. CME Group currently reports a 70% chance that the first rate cut will happen in June. They show an 88% chance it will happen by July.

If this proves accurate - we have reached the light at the end of the tunnel 🚆

The number one thing we do NOT want to see is a major weakening in the labor market. JPow said this specifically in the press conference. If they see “unexpected weakening” it would warrant a response from the Fed.

The median forecast was 4.6% for the funds rate - meaning a mortgage rates of 6.00-6.5% by the end of 2024.

Mortgage companies tend to get ahead of the Fed when it comes to cutting rates. If we see data that continues to show inflation coming down, and nothing indicating a reversal in our work on inflation - you could see rates head towards the “magic” 6.5% barrier as early as May 15th (after we get jobless claims, PMI, and PPI for April).

#2 Longer-run rates have forecasted a higher floor

According to the Dot Plot, the Fed is forecasting our landing point higher in 2026. Fed rates are estimated at 2.625% for 2026. If that is prescient, you’d see mortgage rates, at their lowest levels, at around 4.75% - 5.25%.

Yes, gone are the days of 2-3% mortgage rates - it is not going to come back.

As you speak with you clients looking to do things like a 2-1 buydown and refinancing in the future, be sure to plan for these rates accordingly so they know what they payment will likely be down the road - even after a refinance.

They should really be planning for their long-term rate (after buydown, refinance, etc.) to be around 5%. While that may be conservative, this will give them a solid picture and set expectations for your clients best.

#3 We are at the peak of this cycle

Overall, this was an encouraging meeting from the Fed. They very easily could have slashed their expectations and announced only two cuts in 2024. I think this meeting was what investors needed to hear. The Fed knows it cannot act too slowly in its rate cuts.

We are at the peak of this rate cycle. It is not completely down hill from here, but I do expect consistent improvement in interest rates moving forward.

The Cul-de-Sac 🚘

Thanks for reading - that is all we have for today 😎

Please forward this to your friends and colleagues if you found it valuable.

— Michael F DiLucchio