Fed Steady, Mortgage Rates Unchanged
The Fed meeting last Wednesday revealed no significant surprises. Consumer spending slowed more than expected, but its impact was minor. Mortgage rates ended last week with little change.
Retail Sales Drop Sharply
Ahead of possible price hikes due to new tariffs, retail sales surged in March and remained elevated in April. Investors were anticipating some pullback in May, but the actual decline was even larger than expected. Retail Sales in May fell 0.9% from April, more than the consensus forecast for a drop of 0.6%. Particular weakness was seen in motor vehicles, building materials, and appliances/electronics..
Housing Starts Plunge on Multi-Family Drop
While the headline number for the latest home building data was disappointing, the details of the report removed some of the sting. Overall housing starts in May dropped 10% from April to the lowest level in five years. However, the unexpected weakness was entirely due to volatile multi-family units, which plunged 30%, while single-family starts rose slightly. Single-family building permits, a leading indicator of future construction, dropped 3% from April. A separate survey of home builder sentiment on housing market conditions from the NAHB unexpectedly declined to the lowest level since 2022. Builders reported that uncertainty about tariffs and rising costs made it difficult to price their homes.
Fed Holds Rates Amid Uncertainty
As expected, the Fed made no change to the federal funds rate last Wednesday, leaving it at a range between 4.25% to 4.50% where it has been since December. The meeting statement was similar to the prior one, emphasizing the high level of uncertainty about the economic outlook due to changes in government policies. The statement also elaborated on the challenge facing the Fed, since higher tariffs could lead to increasing unemployment and higher inflation. If both of these outcomes take place, lower rates would be the proper course to boost the labor market, but higher rates would be called for to fight rising prices. The latest forecasts from officials raised the outlook for inflation this year and lowered it for economic growth. These closely watched projections also called for two 25 basis point rate cuts later this year, the same as three months ago. However, officials anticipate just one additional reduction in 2026 and one in 2027, down from two per year in the prior set of forecasts.
Mortgage Rates for the week of 6-23-2025