Updated on January 31, 2025 10:11:56 AM EST
This morning’s inflation readings in December’s Personal Income and Outlays report pretty much pegged expectations. The overall Personal Consumption Expenditures (PCE) index rose 0.3% last month while the more important core reading rose 0.2%. On an annual basis, the overall rose 0.2% from November’s 2.4% yearly rate and the core reading held at November’s 2.8%. All four numbers are exactly what analysts were expecting to see. These are so influential on the markets because they are the Fed’s preferred gauge of inflation. That said, today’s news doesn’t appear to alter predictions that the Fed will hold their wait and see approach before again adjusting key short-term interest rates.
Other headlines in the report were the 0.4% rise in income and a 0.7% jump in spending. The income reading was on point with predictions, but spending was stronger than thought. Analysts were expecting to see a 0.5% increase in spending. Accordingly, we are labeling the report neutral-to-slightly negative for rates.
The 4th Quarter Employment Cost Index (ECI) also brought no surprises. It revealed a 0.9% increase in the index, signaling employer costs for employee wages and benefits rose moderately during the last three months of the year. Rising wages are troublesome for bonds because it fuels inflation throughout the economy. However, because it showed what was expected, we have not seen a reaction to the report this morning.
Next week does not have a large number of economic reports and other events scheduled like this week did. However, a good portion of what is being released is likely to affect mortgage rates. Scheduled data includes the traditional highly influential new month reports, such as the ISM manufacturing index (Monday) and the governmental Employment report (Friday). Furthermore, this week’s FOMC meeting ended the Fed’s mandatory quiet period. There are plenty of Fed-member speeches scheduled next week that have the potential to affect the markets also. Look for details on all of next week’s activities in Sunday evening’s weekly preview.
©Mortgage Commentary 2025