Vital Statistics:
Stocks are higher this morning on no real news. Bonds and MBS are down small.
Jerome Powell testified in front of Congress yesterday and returns today. Here are his prepared remarks.
Policy changes continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.
The effects on inflation could be short lived—reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored.
The FOMC’s obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in the price level from becoming an ongoing inflation problem. As we act to meet that obligation, we will balance our maximum-employment and price-stability mandates, keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.
Austan Goolsbee also admitted that tariffs have not had the expected impact on inflation yet, joining Waller and Bowman who are walking back the hawkish rhetoric. “Somewhat surprisingly, thus far, the impact of tariffs has not been what people feared,” Goolsbee said in public comments before the Milwaukee Business Journal mid-year outlook. “If we do not see inflation resulting from these tariff increases, then, in my mind, we never left what I was calling the golden path before April 2,” which could well open the door to a push toward rate cuts.”
Home prices rose 2.7% YOY in April, according to the Case-Shiller Home Price Index. New York rose the most, with prices increasing 7.9%, while Chicago and Detroit also were leaders. We are seeing the MSAs which lagged the rest of the country begin to catch up.
“The housing market continued its gradual deceleration in April, with annual price gains slowing to their most modest pace in nearly two years,” said Nicholas Godec, CFA, CAIA, CIPM, Head of Fixed Income Tradables & Commodities at S&P Dow Jones Indices. “What’s particularly striking is how this cycle has reshuffled regional leadership—markets that were pandemic darlings are now lagging, while historically steady performers in the Midwest and Northeast are setting the pace. This rotation signals a maturing market that’s increasingly driven by fundamentals rather than speculative fervor.”
“The underlying market dynamics remain challenging but not dire. Mortgage rates sustained their mid6% range throughout April, keeping monthly payment burdens near generational highs and effectively pricing out significant segments of potential buyers. Yet housing supply remains severely constrained, with existing homeowners reluctant to surrender their sub-4% pandemic-era rates and new construction failing to meet demand. This supply-demand imbalance continues to provide a price floor, preventing the sharp corrections that some had feared.”
“We’re witnessing a housing market in transition,” Godec concluded. “The era of broad-based, rapid price appreciation appears over, replaced by a more selective environment where local fundamentals matter more than national trends. For investors and policymakers alike, this shift toward geographic divergence and moderate growth may actually represent a healthier, more sustainable trajectory than the unsustainable boom we experienced just a few years ago.”
I cannot stress this enough, but the post COVID inflation spike was driven mainly by shelter inflation, and that has been cooling for the past 2 years. We are nearly back to pre-pandemic levels.
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Mortgage applications rose 1.1% last week as purchases decreased 0.4% and refis increased 3%. “The combination of the ongoing conflict in the Middle East, current economic conditions, and last week’s FOMC meeting resulted in slightly lower Treasury rates. However, mortgage rates still edged higher but remained in the same narrow range, with the 30-year fixed rate increasing to 6.88 percent last week,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Applications increased slightly overall driven by FHA refinances, but conventional applications saw declines over the week. The average loan size for purchase applications declined to $436,300, the lowest level since January 2025, driven by decreasing conventional purchase loan sizes.”
