While inflation remains elevated and government jobs data suggests continued strength in the labor market, shocks to the economy related to the collapse of Silicon Valley Bank suggest the Federal Reserve may pause or moderate short-term interest rate increases.
Zonda chief economist Ali Wolf said prior to the collapse, a 50-basis-point increase was expected during the Federal Reserve’s March meeting, but now either a 25-bp increase or no increase is more likely.
“We were getting pretty close to 7% interest rates, and mortgage rates would have gone higher on the basis of [February’s] strong jobs report, and a 50-bp increase from the Fed would have been almost guaranteed,” Wolf said during Zonda’s most recent National Housing Market Update webinar. “Yet, here we are in this completely different environment in just a few days' time.”
Wolf said even prior to the SVB collapse, available data provided an inconsistent picture on whether or not further rate hikes were needed to cool the economy. While jobs data from the Bureau of Labor Statistics indicated strong growth in both January and February and greater labor force participation, data from LinkedIn’s Workforce Report—skewed more toward private-sector, white-collar industries—indicated hiring decreased 6.5% month over month and 27.9% year over year in February.
Wolf said inflation data paints a similarly mixed picture on price stability. While the Personal Consumption Expenditures index indicated higher inflation on both a month-over-month and year-over-year basis, data from the Consumer Price Index indicated “better-than-expected” results month over month and year over year.
“There are so many different data sources, none of them pointing in the right directional trend or telling you the same story,” Wolf said. “High level, we understand inflation is past the point of peak from that year-over-year change. But we’re still talking about [inflation] up between 5% to 6% compared to last year when the target is 2%.”
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