It’s Gonna be May: Three Things to Know About Whether Good News is Coming This Month

By Ryan Casey Stephens,  FPQP®
Special Contributor

Famous NSYNC member, Justin Timberlake, once sang, “It’s gonna be May.”

Well, he didn’t sing that exact lyric, but I love a good internet meme. And while that song line might not be real, there’s a good chance that it’s gonna be May: the month that might finally bring us some much-needed relief. It won’t happen all at once, but there’s a series of events that could unfold this month that have the potential to change our real estate circumstances dramatically for the better. Let’s get into this week’s Three Things to Know.

Step One: Wednesday’s Fed Announcement

Chairman Powell takes center stage once again Wednesday, just after we receive the Fed’s latest decision on hiking interest rates. There’s very little chance they do anything other than hike 0.25 percent again, despite the fact that we just faced another major bank collapse, and rising — though still very low, unemployment. 

The press conference after the announcement is where the real news will be found. Nearly one-third of experts think the Fed might hike again in June, and there is a growing expectation of two rate cuts towards the end of the year. The Fed hasn’t said anything in support of those expectations, so the content and tone of Powell’s comments will either bolster Wall Street’s expectations or dash them.

First Thing to Know:

A Fed rate hike this week will meet expectations, but what we see revealed in the Fed’s dot plot chart and Powell’s Q&A will tell us a lot about where we stand in the battle against inflation. 

Step Two: The Numbers we Need

One week after this week’s Fed meeting we’ll see the latest CPI inflation data. After further hiking rates to battle inflation, the Fed needs a win to convince investors of their influence, and they may be in luck. Also of note, we’ll see the newest PPI the next day, which measures the inflation producers see as they create goods.

One of the major components of the CPI report is shelter costs — AKA rent. Since the data is reported year-over-year, we’re going to begin to see last year’s radical rent increases fall off the number. That means we have a real shot at seeing lower inflation readings starting this month. The CPI and PPI were both positive for us last month, and with cooler readings in May, the Fed is still likely to reiterate that inflation is too high. That being said, a lot of momentum could be gained from these reports — momentum that mortgage bonds desperately need.

Second Thing to Know:

One week after the Fed meeting, back-to-back inflation reports have the potential to look quite positive. Markets will have time to digest the content of Powell’s comments, and there’s a solid chance mortgage bonds will receive some welcome support.

Step Three: Jobs Seal The Deal

For the first time since runaway inflation began, the Fed has acknowledged the real risk of a recession. Predictably, then, the Fed will be looking for higher unemployment as a sign it’s time to ease up on their higher rates since unemployment is a hallmark of recession. Powell has repeatedly stated his desire to see higher unemployment to combat inflation. The rate at which jobs and wages have grown has begun to slow, and that’s a sign that Fed-friendly reports could be on the way. Following what might be dramatically positive inflation numbers, an uptick in jobless claims would really go a long way toward creating an environment conducive to the Fed relaxing a bit.

Third Thing to Know:

Imagine all three pieces falling into place — a determined Fed, fantastic inflation data bolstering Wall Street’s confidence, and jobless claims that show higher rates are working. The overall result could be positive in the most meaningful way for us this summer: more support for mortgage bonds. Lower mortgage rates.

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Ryan Casey Stephens FPQP® is a mortgage banker with Watermark Capital. You can reach him at [email protected].