The Federal Reserve’s Open Market Committee (FOMC) decided to leave the Federal Funds Rate alone last week, citing a strong economy and inflation that has failed to grow over the most recent couple of months. At the same time, labor market data arrived well below expectations, suggesting that the labor market cooling trend may be here, according to a recent report from the California Association of Realtors (CAR).
With the weaker-than-expected jobs report and no rate hike for the moment, mortgage rates ended last week at the lowest levels since early April, perhaps signifying that those rates may come down in the second half of the year, said the report.
The Fed kept the fed funds target range steady at 5.25% to 5.50% after its March FOMC meeting, they reported in their own announcement, since inflation has seemed to neither rise nor fall lately.
The Central Bank also suggested a new tack, however, saying that it will likely hold rates at their current level longer, rather than raise rates again.
Fed chair Jerome Powell told the Committee that the inflation fight has stalled in the past few months but said he expected inflation to resume its declining trend later this year.
The Committee also announced that it intends to slow the pace of quantitative tightening, the ongoing reduction of its $7.4 trillion asset portfolio, starting on June 1.
This means that by significantly curtailing the selling off of its assets, said CAR, the Fed is hoping to keep normalizing the size of its balance sheet without creating any money market stress or putting too much upward pressure on interest rates.
Meanwhile Consumers’ attitude towards the economy dipped again in April, with the Conference Board’s Consumer Confidence Index declining to 97.0 from a downwardly revised 103.1 in March.
The Present Situation Index (PSI), which measures consumers’ current assessment of business and labor market conditions, fell 3.9 points to 142.9, while the Expectation Index slipped 7.6 points from the prior month to 66.4. Less optimism in the labor market was likely another driving force for the decline in consumer confidence last month, said The Conference Board, as 14.9% of consumers viewed jobs as “hard to get,” an increase from 12.2% in March.
“Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation and more concerned about future business conditions, job availability, and income,” said Dana M. Peterson, Chief Economist at The Conference Board. “Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.
“In the month,” said Peterson, “confidence declined among consumers of all age groups and almost all income groups except for the $25,000 to $49,999 bracket. Nonetheless, consumers under 35 continued to express greater confidence than those over 35. In April, households with incomes below $25,000 and those with incomes above $75,000 reported the largest deteriorations in confidence. However, over a six-month basis, confidence for consumers earning less than $50,000 has been stable, but confidence among consumers earning more has weakened.”
