Mortgage Rate Hikes Clash with Economic Growth and Geopolitical Tumult

Primary Mortgage Market Survey® as of October 12, 2023

For the fifth consecutive week, mortgage rates rose as ongoing market and geopolitical uncertainty continues to increase. The good news is that the economy and incomes continue to grow at a solid pace, but the housing market remains fraught with significant affordability constraints. As a result, purchase demand remains at a three-decade low.

Mortgage rates dropped sharply but briefly after hitting multi-decade highs, only to jump again this morning. The initial drop in rates was influenced by the Israel-Hamas conflict and anticipation regarding the Federal Reserve’s (Fed) policy comments coming this week. Multiple Fed officials have indicated a pause in rate hikes, suggesting that past hikes and market reactions have already been tightening financial conditions. The market reacted positively to these comments, interpreting them as a sign of a less aggressive Fed. However, officials have also clarified that rate hikes could resume if inflation or economic growth exceed expectations. Upcoming economic reports, especially those related to inflation and employment, will be crucial in influencing future Fed decisions and market movements.

Opinions, estimates, forecasts, and other views contained in this document are those of Freddie Mac’s economists and other researchers, do not necessarily represent the views of Freddie Mac or its management, and should not be construed as indicating Freddie Mac’s business prospects or expected results. Although the authors attempt to provide reliable, useful information, they do not guarantee that the information or other content in this document is accurate, current or suitable for any particular purpose. All content is subject to change without notice. All content is provided on an “as is” basis, with no warranties of any kind whatsoever. Information from this document may be used with proper attribution. Alteration of this document or its content is strictly prohibited. ©2023 by Freddie Mac.

Week of October 9, 2023 in Review

Shelter and energy costs pushed consumer prices higher in September, but inflation has made significant progress lower since peaking last year – and some Fed members are taking notice. Here are last week’s headlines:

  • Lodging, Energy Costs Push Inflation Higher
  • Wholesale Inflation Heating Up
  • Fed Members Breaking Rank on Rate Hikes?
  • Understanding Seasonal Housing and Appreciation Trends
  • Initial Jobless Claims Remain Tame

Lodging, Energy Costs Push Inflation Higher


September’s Consumer Price Index (CPI) showed that inflation rose 0.4%, with this monthly reading coming in just above estimates. On an annual basis, CPI held steady at 3.7% last month, though this is still near the lowest level in more than two years. Core CPI, which strips out volatile food and energy prices, increased 0.3% while the annual reading declined from 4.3% to 4.1%. Rising shelter, energy and gasoline prices helped push inflation higher last month. However, oil prices have fallen since the end of September, which should help inflation moving forward if they don’t spike higher again. 

What’s the bottom line? Inflation has made significant progress lower after peaking last year, with the headline reading at 3.7% (down from 9.1%) and the core reading at 4.1% (down from 6.6%). Remember, the Fed has been hiking its benchmark Fed Funds Rate (which is the overnight borrowing rate for banks) to try to slow the economy and curb inflation. 

Their latest hike in July was the eleventh since March of last year, pushing the Fed Funds Rate to the highest level in 22 years. The Fed did not hike at their September meeting, so they could continue to assess incoming inflation, labor sector and other economic data. 

Will the progress on inflation be enough for another pause at their November 1 meeting?

Wholesale Inflation Heating Up

The Producer Price Index (PPI), which measures inflation on the wholesale level, increased by 0.5% in September, coming in hotter than expected. On an annual basis, PPI rose from 2% to 2.2% though there was a big revision to the previous report, bringing the annual figure up from 1.6% to 2%. 

Core PPI, which also strips out volatile food and energy prices, rose by 0.3%, with the year-over-year reading increasing from 2.5% to 2.7%. There was also a big revision to this data in the previous report, moving this annual figure up from 2.2% to 2.5%.

What’s the bottom line? While annual PPI moved higher in the wrong direction, it remains well below last year’s 11.7% peak. Plus, much of the increase in wholesale inflation was also due to rising energy prices, which were up 3.3% last month after rising 10.3% in August.

Fed Members Breaking Rank on Rate Hikes?

Earlier this month, Fed Governor Michelle Bowman expressed concern about high inflation, stating that she expects the Fed may need to “raise rates further and hold them at a restrictive level for some time.”

However, other Fed members have signaled that they may be ready to end hikes to the Fed Funds Rate, citing the risks of hiking too much. Fed Governor Christopher Waller said, “The financial markets are tightening up and they are going to do some of the work for us.” He added, “We’re finally getting very good inflation data. If this continues, we’re pretty much back to our target.”

Atlanta Fed President, Raphael Bostic, further stated, “I actually don’t think we need to increase rates anymore,” as he noted that rates were “clearly” restrictive and slowing the economy. San Francisco Fed President Mary Daly has also noted the need for further hikes “is diminished” if financial conditions remain tight. Dallas Fed President Lorie Logan and Philadelphia Fed President Patrick Harker have made similar comments as well.

What’s the bottom line? We are clearly seeing some dissent among Fed members, which will be crucial to follow ahead of their next rate decision on November 1.

Understanding Seasonal Housing and Appreciation Trends

Zillow reported that home values declined by 0.1% in September, the first monthly decrease since February, though prices are still 2.1% higher than in September of last year. In addition, home values are still on pace to increase 6% this year according to Zillow’s index.

What’s the bottom line? The small price decline in September follows significant increases seen throughout the spring and summer months, including a 1.3% rise in April, May and June and a 0.7% rise in July. Fall usually brings less competition in the housing market because families with school-age children like to be settled ahead of a new school year. This season is typically the softest for home price appreciation.

Initial Jobless Claims Remain Tame

Initial Jobless Claims were unchanged in the latest week, with 209,000 people filing for unemployment benefits for the first time. This is the fourth straight week that Initial Claims have been below 210,000, remaining near an eight-month low and suggesting that employers are holding on to workers.

Continuing Claims rose by 30,000, with 1.702 million people still receiving benefits after filing their initial claim. This data has moved higher over the last few weeks, and we’ll have to see if this trend continues as some companies have reduced hiring plans.

What to Look for This Week

Key housing reports are ahead, starting Tuesday with an update on home builder sentiment for this month from the National Association of Home Builders. September’s Housing Starts and Building Permits will be reported on Wednesday, while Existing Home Sales follow on Thursday.

Also, look for October’s manufacturing data for the New York and Philadelphia regions on Monday and Thursday, respectively. September’s Retail Sales will be released on Tuesday and the latest Jobless Claims on Thursday.

Technical Picture

Mortgage Bonds ended last week trading in a wide range between support at 97.67 and overhead resistance at 98.541, which is a tough Fibonacci ceiling. The 10-year also ended the week in a wide range with a ceiling at 4.71% and support at the 25-day Moving Average.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.