Federal Reserve Hints at Rate Cuts, Job Growth Slows, and Mortgage Applications Decline: Portafolio Capital Markets Recap for Week Ending 8/2/2024
Federal Reserve Holds Rates Steady, Hints at Potential Cuts Amid Inflation Progress
Federal Reserve officials held short-term interest rates steady at 5.25-5.5% on Wednesday but signaled that inflation is nearing their target, potentially allowing for future rate cuts. While central bankers did not indicate an imminent reduction, they acknowledged ongoing economic concerns despite some progress. The Federal Open Market Committee’s statement highlighted that risks to employment and inflation goals are becoming more balanced, reflecting a slight improvement from previous language. Inflation has eased over the past year but remains somewhat elevated, with recent progress toward the 2 percent target.
Chair Jerome Powell suggested that a rate cut could be considered as early as September if economic data continue to show inflation easing. This cautious yet optimistic stance keeps the possibility of rate adjustments open based on upcoming economic developments.
The full press release by the Federal Reserve can be found here.
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U.S. Job Growth Slows Sharply in July, Unemployment Rate Rises
Job growth in the U.S. slowed significantly in July, with nonfarm payrolls increasing by only 114,000, far below the expected 185,000, and down from June's revised 179,000. The unemployment rate edged up to 4.3%, its highest since October 2021, fueling fears of a broader economic slowdown. Average hourly earnings rose 0.2% for the month and 3.6% year-over-year, both below forecasts.
Despite leading sectors like health care and construction adding jobs, the overall labor market showed signs of weakness, with part-time employment for economic reasons and long-term unemployment both increasing. This latest data adds to mixed signals about the economy, raising concerns about whether the Federal Reserve will cut interest rates as anticipated.
The full press release by the US Bureau of Labor Statistics can be found here.
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Mortgage Applications Decline Amid High Rates and Affordability Issues
Mortgage applications fell by 3.9 percent from the previous week, according to the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending July 26, 2024. The Market Composite Index, which measures mortgage loan application volume, showed declines of 3.9 percent on a seasonally adjusted basis and 4 percent on an unadjusted basis. Refinance applications decreased by 7 percent from the previous week but were 32 percent higher than a year ago.
The Purchase Index dropped by 2 percent seasonally adjusted and by 1 percent unadjusted, marking a 14 percent year-over-year decrease. MBA's Chief Economist Mike Fratantoni attributed the decline to stable mortgage rates and ongoing affordability challenges. Notably, the 30-year fixed mortgage rate remained at 6.82 percent, while the FHA, VA, and jumbo loan rates saw slight decreases. The refinance share of mortgage activity also fell, highlighting the impact of current economic conditions on mortgage activity.
The full survey by the MBA (Mortgage Bankers Association) can be found here.
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