Mortgage Rates Continue to Climb in February

Mortgage rates climbed further above 7% this week, complicating the housing market with mixed signals on where home affordability will head next.

The average rate for a 30-year fixed loan reached 7.16% on Thursday and has remained over the 7% threshold every day over the past seven days, according to Mortgage News Daily tracking. The latest average is the highest in two months, matching the highest level since late November.

A separate index tracking the weekly average on a 30-year loan showed a similar story — the weekly average increased 12 basis points to 6.90% from 6.77% a week prior, according to Freddie Mac’s latest release.

Read more: Mortgage rates hover around 7% — is this a good time to buy a house?

So far in 2024, housing market activity remains slow but is expected to accelerate when rates drop. However, resilient economic data — strong labor market and consumer spending — will likely delay the rate cut that many were expecting earlier in the year. That would have a dampening effect on the normally busy spring homebuying season.

“The economy is creating jobs, but this mortgage rate is really hitting affordability limits for many households,” Lawrence Yun, chief economist at the National Association of Realtors (NAR), said Thursday. “Certainly, they cannot get a mortgage outside of their budget. So it’s not good news.”

Demand wanes as high rate stays

Rising mortgage rates again showed up in the level of mortgage activity this week. The volume of mortgage applications decreased more than 10% on a weekly basis, according to Mortgage Bankers Association data. Refinancing applications declined 11%.

Expensive borrowing costs and home prices have curbed buyer demand this season. Redfin’s Homebuyer Demand Index — measured by requests for home tours and other buying services — retreated 18% in February. Chen Zhao, Redfin’s economist research lead, also cited inflation as a culprit for the waning interest.

January’s Consumer Price Index (CPI) increased 0.3% over December and 3.1% over the last year; both measurements were higher than economists’ expectations of 0.2% month over month and 2.9% annual increase.

That “…hotter-than-expected inflation report confirms that the Fed is unlikely to cut interest rates next month, which means mortgage rates will stay near 7% for now,” Zhao said.

A separate tracking of homebuyer intentions also showed a decline in buying plans. The share of survey participants responding they have “plans to buy a new home within six months” has been dropping over the last two months, according to Apollo Global Management’s US Housing Outlook report published in February 2024. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

“Long-term housing demand is determined by jobs and we know we are adding jobs each month,” Yun said. “But the timing of the purchase is determined by mortgage rate and inventory availability. So this recent increase in mortgage rate(s) will definitely negate any of the long-term housing demand potential from job creation.”

Expensive borrowing costs and home prices have curbed buyer demand this season. (Mike Kemp/In Pictures via Getty Images)

Expensive borrowing costs and home prices have curbed buyer demand this season. (photo by Mike Kemp/In Pictures via Getty Images) (Mike Kemp via Getty Images)

First time buyers holding on

Elevated home prices and unwavering interest rates have been hurting prospective home buyers’ budgets. Monthly principal and interest mortgage payments on median-priced single-family homes have nearly doubled to $2,075 in 2023 from $1,200 in 2021, the National Association of Realtor (NAR)’s affordability index reported.

Homeowners have also had to devote a higher share of their income to mortgage payments during 2023. The share of income spent on housing payments averaged 25.5% in 2023, reaching as high as 27.4% in October.

“Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” Mike Fratantoni, MBA VP and chief economist, said.

The number of first-time homebuyers has dropped in today’s harsh buying environment, with the share of new buyers dipping to 28% in January, down from 29% in December, and 31% in January 2023, the National Association of Realtors reported.

“We don’t want to see [the share of first-time buyers] under 30%,” Yun said, “Few of the first time buyers have cash, so they are competing with cash buyers and will be at a disadvantage.”

Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

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Why Have Central Banks Been on a Gold-Buying Spree?

Panel of industry professionals examines the rapid rate at which central banks have been buying physical gold

AUSTIN, Texas, Feb. 21, 2024 /PRNewswire/ — Central banks as a whole have dramatically increased their purchases of physical gold in recent years. What do these powerful institutions see in the precious metal, and do those same benefits translate to American portfolios?


In the latest episode of U.S. Money Reserve’s exclusive video series, “In Conversation,” our panel of experts—including two former Directors of the U.S. Mint—examines central banks’ record-breaking demand for physical gold, and breaks down the possible motives behind these purchases. Viewer will also learn which economic factors are currently making gold a prized asset for government banks around the world.

Hosted by Chuck Woolery, this week’s panel includes Philip N. Diehl, 35th Director of the U.S. Mint (1994–2000) and President of U.S. Money Reserve; Edmund C. Moy, 38th Director of the U.S. Mint (2006–2011) and U.S. Money Reserve’s Senior IRA Strategist; Angela Roberts, U.S. Money Reserve’s Director of Education; and U.S. Money Reserve’s Coy Wells.

For more information or to speak with company leadership at U.S. Money Reserve, please contact Christol Farris at 512-568-9991 or [email protected] or visit www.usmoneyreserve.com.

About U.S. Money Reserve

U.S. Money Reserve is one of the nation’s largest private distributors of U.S. government–issued gold, silver, platinum, and palladium products. The company is not affiliated the U.S. Government and the U.S. Mint.

Founded in 2001, U.S. Money Reserve has grown into one of the world’s largest private distributors of U.S. and foreign government–issued gold, silver, platinum, and palladium legal-tender products, as well as precious metals IRAs. Hundreds of thousands of clients across the country rely on U.S. Money Reserve to diversify their assets with physical precious metals.

U.S. Money Reserve’s uniquely trained team includes coin research and numismatic professionals equipped with expert market knowledge to find products that offer the highest profit potential for precious metals buyers at every level. U.S. Money Reserve goes above the industry standard to provide superior customer service, with the goal of establishing a long-term relationship with each and every one of its customers. U.S. Money Reserve is based in Austin, Texas.

Like them on Facebook, connect on LinkedIn, and follow on Twitter @USMoneyReserve.

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UBS: Silver Poised to “Dramatically” Outperform Gold This Year

Goldman Sachs: Gold Prices Are Forecast To Rise 6% in the Next 12 Months

Gold prices are poised to rise as central banks purchase the precious metal and as strong retail demand in emerging markets bolsters prices, according to Goldman Sachs Research.

The yellow metal is forecast to climb about 6% in the next 12 months to $2,175 a troy ounce, Nicholas Snowdon, head of metals in Commodities Research, and analyst Lavinia Forcellese write in the team’s report. They point out gold prices may trade in a range in the near term amid uncertainty about Federal Reserve interest-rate policy. (Gold, which doesn’t offer yield, tends to be less attractive to investors when interest rates are higher.) The downside risks to gold prices, meanwhile, are expected to be limited by several key factors.

Central bank purchases are strong and geopolitical tensions are high. Gold buying by central banks — particularly from China and India — have helped offset money flowing out of gold exchange-traded funds. Those purchases have been driven in part by geopolitical tensions, such as Russia’s invasion of Ukraine, and the Covid pandemic.

Central banks bought an average of 1,060 tonnes from 2022 to 2023, compared with 509 tonnes bought between 2016 to 2019. The increase comes as China shifts reserves away from US dollars and countries such as Poland also ramp up their gold reserves.

“We expect central bank purchases will remain strong on the back of reserve diversification by EM countries and elevated geopolitical tensions,” our analysts write.

Investment demand for gold is yet to rebound. The recent lack of ETF purchases is probably because gold-ETF holdings were already high, particularly compared with the level of real (inflation-adjusted) interest rates. Major disruptions, like the Russia-Ukraine conflict and the Silicon Valley Bank crisis in the US, sparked purchases of gold in recent years, and holdings have stayed elevated despite the rise in long-term US yields.

Recently, speculative positioning in gold by the likes of hedge funds has tracked the shift in long-term yields, according to Goldman Sachs Research. This suggests there’s more sensitivity to shifts in macroeconomic policy than to ETF holdings, which have continued to have outflows.

Historically, changes in gold ETF holdings have often been triggered by major risk-off events (when the appetite for risk declines) and by cycles of easier monetary policy. Our analysts expect ETF holdings to climb once the Fed starts cutting rates, which our economists think could begin as early as May.

Strong retail demand for gold could propel the metal’s price higher. Meanwhile, the “wealth effect” of rising incomes in emerging markets is driving consumer demand for gold, especially in jewelry.

“The rapidly growing cohort of ‘affluent’ consumers in India … will drive growth in jewelry consumption,” our analysts write. “Moreover, gold consumption has also been supported by a lack of alternative investments in some countries which saw big policy shifts (Turkey, China) in the past few years.”

In China, gold was one of the best-performing assets in 2023, driven by weak consumer confidence and concerns about growth that raised demand for gold’s “safe haven” status. About 40% of survey participants at the Goldman Sachs Global Macro Conference in Hong Kong thought gold would rise above $2,200/troy ounce by year-end. “We expect the property slowdown and investor concerns around the Chinese equity market to drive strong China retail demand over the coming year,” Goldman Sachs Research analysts write.


This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.

Leading Economic Index Suggests U.S. Recession Fears Receding

Cash dollars and stock market indicators (inflation, economy, crisis, finance)

Cash dollars and stock market indicators (inflation, economy, crisis, finance)Getty Images

  • The Conference Board’s Leading Economic Index fell to its lowest level since April 2020.

  • It marks the first time since July 2022 that the gauge is not signaling a recession ahead.

  • Still, the indicator is pointing to “near-to-zero” real GDP growth in the coming quarters.

The soft landing camp just got another boost to its outlook for the US economy.

The Conference Board’s Leading Economic Index– a gauge of future economic activity — dropped 0.4% to 102.7 in January, signaling the lowest level since April 2020 when the US economy was struck by the COVID-19 pandemic-spurred lockdowns.

It marks the 23rd straight month that the index has declined, but the decline has slowed sharply and most of the gauge’s 10 indicators are now flashing positive. The fresh data prompted the Conference Board to announce that a recession is no longer imminent for the first time since summer 2022.

“The U.S. LEI fell further in January, as weekly hours worked in manufacturing continued to decline and the yield spread remained negative,” the Conference Board’s Justyna Zabinska-La Monica said on Tuesday.

“While the declining LEI continues to signal headwinds to economic activity, for the first time in the past two years, six out of its ten components were positive contributors over the past six-month period (ending in January 2024). As a result, the leading index currently does not signal recession ahead.”

Still, the group added that despite no recession forecast for 2024, “near-to-zero” real GDP growth should be expected in the second and third quarters.

Stepping back, a recent wave of red-hot economic data has signaled a strong outlook and has pushed back against the market’s expectations for imminent rate cuts from the Federal Reserve.

But experts including Citi’s chief US economist Andrew Hollenhorst and economist David Rosenberg still predict a recession is coming this year. Hollenhorst this month emphasized potential weaknesses in the labor market, coupled with inflationary pressure and sluggish consumer spending, which could spark a recession in the middle of 2024.

Read the original article on Business Insider

Markets underestimate risk of inflation re-accelerating, says PIMCO

By Davide Barbuscia

NEW YORK (Reuters) – Equity and fixed income markets may be too optimistic on how quickly central banks will cut interest rates and underestimate the risk of an economic downturn or of inflation reaccelerating, U.S. bond giant PIMCO said on Wednesday.

The asset manager over the past year has shifted out of lower-rated credit into higher-quality, securitized assets that could gain value and prove more resilient in a range of economic scenarios, PIMCO’s group chief investment officer, Dan Ivascyn, said in a note.

PIMCO expects inflation to continue to decline and that central banks, including the Federal Reserve, will cut rates this year, but said markets were too optimistic on how quickly the process will unfold.

“We think the market is rightly suggesting that a soft landing in the U.S. is possible,” Ivascyn said, referring to an economic scenario where the Fed manages to bring inflation down without causing a recession. “However, credit spreads and equity valuations factor in a very low probability to the risk of either a recession or of inflation reigniting.”

PIMCO maintains exposure to U.S. Treasury Inflation-Protected Securities to protect against the possibility of a rebound in inflation.

Bonds rallied late last year on expectations the Fed had reached a peak in its interest-rate hiking cycle. PIMCO’s flagship Income Fund, managed by Ivascyn, posted a 9.32% return in 2023.

“When the Fed begins to cut rates, we believe price appreciation could lift returns above even the high levels achieved last year,” Ivascyn said.

He added he has reduced the fund’s interest rate exposure from its peak last year to maturities ranging between five and 10 years. While it maintains exposure to shorter-dated securities, they appear to be overvalued because of excessive market optimism on how quickly the U.S. central bank will lower rates.

“In our view, when the Fed ultimately cuts interest rates … yields in longer-maturity bonds could rise further, pressuring prices,” he said.

Concerns around U.S. Treasury debt issuance and the long-term sustainability of the country’s fiscal deficits could pressure long-dated bonds further, he said.

“We are beginning to diversify our interest rate exposure into high-quality markets outside the U.S., including in Australia, Europe, and the UK,” said Ivascyn.

(Reporting by Davide Barbuscia; editing by Jonathan Oatis)

15 Weakest Currencies in 2024

In this article, we will take a look at the 15 weakest currencies in the world in 2024. If you would like to skip our discussion on the foreign exchange market, you can go to the 5 Weakest Currencies in The World in 2024.

The global foreign exchange market is estimated to be valued at $752.7 billion as of 2023. The market is predicted to expand at a compound annual growth rate (CAGR) of 6.5% to reach a value of $1023.91 billion by 2028. The global foreign exchange market turnover is influenced by reporting dealers who contribute to liquidity throughout the day. These dealers engage in buying and selling foreign currency at their set prices, maintaining a continuous offering of prices throughout the day. This impacts the daily forex market cap and shapes predictions regarding the market’s future. A key factor driving the growth of the foreign exchange market is the increasing trend of urbanization and digitalization. These factors are reshaping the foreign exchange market landscape, with digital technologies influencing trading methods and access to currency markets.

Europe is forecasted to contribute 43% to the overall growth of the global foreign exchange market during the period between 2023-2028. Similarly, North America is also expected to experience growth. From 2020 to 2021, currency transactions in North America increased by 3.6%, largely due to consistent monitoring and trade regulation in the region. The initial phase of the pandemic in North America caused numerous industrial facilities to temporarily close, which had an effect on 2020’s foreign exchange operations. However, when COVID-19 immunization efforts began in 2021, the foreign exchange market in North America showed signs of stability and confidence. For instance, the USD experienced a recovery amid signs of economic revival. You can also check out the 15 Strongest Currencies in the World in 2024 here.

Major Players in Foreign Exchange Services

Key industry players are significantly contributing to the growth of the foreign exchange market. One such company is Bank of America Corporation (NYSE:BAC), catering to small and middle-market businesses, large corporations, and individual consumers with a comprehensive range of banking services. Bank of America Corporation (NYSE:BAC) facilitates the online ordering of foreign currency through a mobile banking app for individuals with savings accounts or at branches for credit card holders.

Moreover, JPMorgan Chase & Co. (NYSE:JPM) is another prominent financial services company operating in the industry. The company specializes in cross-border payments, operating in over 200 countries and territories, enabling individuals to send and receive money in more than 120 currencies. As of December 31, 2023, JPMorgan Chase & Co. (NYSE:JPM) reported holding assets totaling $3.9 trillion and stockholders’ equity amounting to $328 billion.

Here’s what Vltava Fund said about JPMorgan Chase & Co. (NYSE:JPM) in its Q4 2023 investor letter:

“Last spring, the US went through a brief banking crisis that cost several smaller and medium-sized banks their lives. One of them, First Republic Bank, with assets of $230 billion, went into receivership and was bought out by the largest US bank, JPMorgan Chase & Co. (NYSE:JPM). The acquisition terms were very favourable for JPM and the facts that few, if any, other banks could have taken over the whole of First Republic Bank in its then-present state while guaranteeing more than $100 billion of its deposits played a role. JPM could do it. It is not only the largest, but also by its balance sheet the strongest US bank and, in our opinion, clearly the best managed. It has come out of this crisis even stronger. We have actively followed the banking sector for 20 years in many countries around the world. Our view is that a well-managed bank can be a very good long-term investment but that it is better to focus on the best and highest quality available. Banking is not a sector where it pays to trade quality for cheaper valuations. That is why we hold JPM.”

Another key player in the industry, Commonwealth Bank of Australia (ASX:CBAPK), provides the convenience of ordering foreign currency online through ExpressFX, with the flexibility to order up to $10,000. The online ordering platform offers a variety of options with up to 30 currencies available. Customers also have the alternative to purchase foreign currency in person at the branch.

In a press release on February 14, 2024, the Commonwealth Bank of Australia (ASX:CBAPK) highlighted its achievements, asserting its position as Australia’s largest home lender. The bank played a significant role in helping over 60,000 customers acquire new homes during the half-year period. Moreover, they contributed to business growth by extending $18 billion in new business loans. As Australia’s primary savings bank, they hold more than 26% of all household deposits.

15 Weakest Currencies in The World in 2024

15 Weakest Currencies in The World in 2024

Photo by Christian Dubovan on Unsplash

Our Methodology

To shortlist the 15 weakest currencies in the world in 2024, we took into account two primary metrics, namely the inherent strength of a currency in relation to exchange rates and its volume of foreign exchange trade. Information related to Forex trading volumes and exchange rates was sourced from CMC Markets, a financial services company based in the UK, and Forex.com. For the purpose of ranking, we have used the latest exchange rates in terms of the US Dollar.

By the way, Insider Monkey is an investing website that tracks the movements of corporate insiders and hedge funds. By using a consensus approach, we identify the best stock picks of more than 900 hedge funds investing in US stocks. The top 10 consensus stock picks of hedge funds outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). Whether you are a beginner investor or professional one looking for the best stocks to buy, you can benefit from the wisdom of hedge funds and corporate insiders.

Here’s the list of the weakest currencies in the world in 2024.

15 Weakest Currencies in The World in 2024

15. Congolese Franc (CDF)

1 USD = 2,750.00 CDF

The Congolese Franc is the currency of the Democratic Republic of Congo. Created in 1997 — it is one of the weakest currencies in the world and continues to depreciate against the US dollar. In January 2024, the official exchange rate witnessed a weekly depreciation of 1.34%. This decline is attributed to the prevalent political instability and a scarcity of economic opportunities within the country.

14. Burundian Fran (BIF)

1 USD = 2,854.10 BIF

The Burundian Franc is Burundi’s currency. It is amongst the weakest currencies due to the country’s heavy reliance on agriculture and the absence of industrialization. Despite Burundi’s decent food production, the economy has contracted by 25% in recent years, primarily attributed to civil unrest and overpopulation. Therefore, the nation heavily depends on humanitarian assistance and has a substantial national debt, reaching billions.

13. Ugandan Shilling (USH)

1 USD = 3,867.78 USH

The weakness of the Ugandan Shilling can be attributed to historical challenges faced during the government of Idi Amin, particularly in economic and immigration policies. Despite some improvements in recent years, the currency has depreciated around 5% against USD during the financial year 2023, indicative of ongoing economic instability and a lack of substantial development.

12. Colombian Peso (COP)

1 USD = 3,912.13 COP

Colombia has experienced significant economic instability, leading to an increase in prices and the depreciation of the country’s currency. The Colombian economy relies heavily on exported goods, such as oil and coffee. Fluctuations in global prices for these commodities have a profound impact on the stability of the Colombian currency.

11. Cambodian Riel (KHR)

1 USD = 4,073.56 KHR

The agriculture and tourism sectors serve as Cambodia’s main sources of income. The country has a dual-currency system, where US dollars are accepted as legal tender alongside the local currency, the riel. Dollar usage is prominent in urban centers and tourist destinations, while the riel is more commonly used in rural areas. In response to this disparity, the National Bank of Cambodia made efforts in 2020 to remove dependency on dollars slowly.

10. Malagasy Ariary (MGA)

1 USD = 4,542.83 MGA

Madagascar adopted the Malagasy ariary as its main currency in 2005, replacing the franc. Madagascar deals with extreme poverty, as around 69% of its population lives below the poverty line. The country faces challenges of slow economic growth and poverty due to weak governance, lack of development of human resources, and poor infrastructure.

9. Paraguayan Guarani (PYG)

1 USD = 7,283.00 PYG

Paraguay is experiencing a major economic decline characterized by high inflation, increased unemployment rates, a rise in poverty, and heavy corruption. These factors have led to the depreciation of the currency. Paraguayan Guarani is at the ninth position on our list of the 15 weakest currencies in the world in 2024.

8. Guinean Franc (GNF)

1 USD = 8,593.11 GNF

The Guinea Franc (GNF) is the official currency of the Republic of Guinea, divided into smaller units known as centimes, although centime coins are no longer in circulation due to their low purchasing power. The GNF operates on a floating exchange rate and is considered weak, primarily due to Guinea’s economic instability and high inflation rate.

7. Uzbekestani Som (UZS)

1 USD = 12,339.85 UZS

The economy of Uzbekistan experienced significant challenges due to the impact of the Covid-19 pandemic. While internal economic activities resumed in the third quarter of 2022, the decline in industrial output created uncertainty regarding the future of the country’s currency. Despite increased government efforts to stabilize the currency, success has been limited or non-existent.

6. Lebanese Pound (LBP)

1 USD = 15,023.74 LBP

The depreciation of the Lebanese pound is due to a severe economic crisis that began in 2019 and is considered one of the worst by the World Bank since the mid-19th century. By October 2019, Lebanon faced four major challenges leading to the crisis. Firstly, the extremely high government debt made defaulting seemingly inevitable. Secondly, banks, which had lent a significant portion of their funds to the government, were facing a shortage of cash. Thirdly, the economy had not experienced growth for a decade, resulting in numerous social and political problems. Lastly, the country was in a state of political chaos, lacking clear leadership to address the crisis.

Click to continue reading and see the 5 Weakest Currencies in The World in 2024. Suggested Articles:

Disclosure: None. 15 Weakest Currencies in The World in 2024 is published on Insider Monkey.

Fed Minutes: Patience Prevails as Officials Await Clearer Inflation Trend

  • The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.
  • The meeting summary indicated a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.
  • However, officials noted that they wanted to see more before starting to ease policy while saying that rate hikes are likely over. Members cited the “risks of moving too quickly” on cuts.

WASHINGTON – Federal Reserve officials indicated at their last meeting that they were in no hurry to cut interest rates and expressed both optimism and caution on inflation, according to minutes from the session released Wednesday.

The discussion came as policymakers not only decided to leave their key overnight borrowing rate unchanged but also altered the post-meeting statement to indicate that no cuts would be coming until the rate-setting Federal Open Market Committee held “greater confidence” that inflation was receding.

“Most participants noted the risks of moving too quickly to ease the stance of policy and emphasized the importance of carefully assessing incoming data in judging whether inflation is moving down sustainably to 2 percent,” the minutes stated.

The meeting summary did indicate a general sense of optimism that the Fed’s policy moves had succeeded in lowering the rate of inflation, which in mid-2022 hit its highest level in more than 40 years.

However, officials noted that they wanted to see more before starting to ease policy, while saying that rate hikes are likely over.

“In discussing the policy outlook, participants judged that the policy rate was likely at its peak for this tightening cycle,” the minutes stated. But, “Participants generally noted that they did not expect it would be appropriate to reduce the target range for the federal funds rate until they had gained greater confidence that inflation was moving sustainably toward 2 percent.”

Before the meeting, a string of reports showed that inflation, while still elevated, was moving back toward the Fed’s 2% target. While the minutes assessed the “solid progress” being made, the committee viewed some of that progress as “idiosyncratic” and possibly due to factors that won’t last.

Consequently, members said they will “carefully assess” incoming data to judge where inflation is heading over the longer term. Officials noted both upside and downside risks and worried about lowering rates too quickly.

Questions over how quickly to move

“Participants highlighted the uncertainty associated with how long a restrictive monetary policy stance would need to be maintained,” the summary said.

Officials “remained concerned that elevated inflation continued to harm households, especially those with limited means to absorb higher prices,” the minutes said. “While the inflation data had indicated significant disinflation in the second half of last year, participants observed that they would be carefully assessing incoming data in judging whether inflation was moving down sustainably toward 2 percent.”

The minutes reflected an internal debate over how quickly the Fed will want to move considering the uncertainty about the outlook.

Since the Jan. 30-31 meeting, the cautionary approach has borne out as separate readings on consumer and producer prices showed inflation running hotter than expected and still well ahead of the Fed’s 2% 12-month target.

Multiple officials in recent weeks have indicated a patient approach toward loosening monetary policy. A stable economy, which grew at a 2.5% annualized pace in 2023, has encouraged FOMC members that the succession of 11 interest rate hikes implemented in 2022 and 2023 have not substantially hampered growth.

To the contrary, the U.S. labor market has continued to expand at a brisk pace, adding 353,000 nonfarm payroll positions in January. First-quarter economic data thus far is pointing to GDP growth of 2.9%, according to the Atlanta Fed.

Along with the discussion on rates, members also brought up the bond holdings on the Fed’s balance sheet. Since June 2022, the central bank has allowed more than $1.3 trillion in Treasurys and mortgage-backed securities to roll off rather than reinvesting proceeds as usual.

‘Ample level of reserves’

The minutes indicated that a more in-depth discussion will take place at the March meeting. Policymakers also indicated at the January meeting that they are likely to take a go-slow approach on a process nicknamed “quantitative tightening.” The pertinent question is how high reserve holdings will need to be to satisfy banks’ needs. The Fed characterizes the current level as “ample.”

“Some participants remarked that, given the uncertainty surrounding estimates of the ample level of reserves, slowing the pace of runoff could help smooth the transition to that level of reserves or could allow the Committee to continue balance sheet runoff for longer,” the minutes said. “In addition, a few participants noted that the process of balance sheet runoff could continue for some time even after the Committee begins to reduce the target range for the federal funds rate.”

Fed officials consider current policy to be restrictive, so the big question going forward will be how much it will need to be relaxed both to support growth and control inflation.

There is some concern that growth continues to be too fast.

The consumer price index rose 3.1% on a 12-month basis in January – 3.9% when excluding food and energy, the latter of which posted a big decline during the month. So-called sticky CPI, which weighs toward housing and other prices that don’t fluctuate as much, rose 4.6%, according to the Atlanta Fed. Producer prices increased 0.3% on a monthly basis, well above Wall Street expectations.

In an interview on CBS’ “60 Minutes” that aired just a few days after the FOMC meeting, Chair Jerome Powell said, “With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully.” He added that he is looking for “more evidence that inflation is moving sustainably down to 2%.”

Markets have since had to recalibrate their expectations for rate cuts.

Where traders in the fed funds futures market had been pricing in a near lock for a March cut, that has been pushed out to June. The expected level of cuts for the full year had been reduced to four from six. FOMC officials in December projected three.

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Mortgage Markets Shudder as Interest Rates Soar Past 7%

  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.06% from 6.87%
  • Applications to refinance a home loan dropped 11% last week compared with the previous week and were just 0.1% higher than the same week one year ago.
  • Applications for a mortgage to purchase a home fell 10% for the week and were 13% lower than the same week a year ago.
New houses are seen for sale at Woodland Village, built by Lifestyle Homes housing developer, in Cold Springs, Nevada, on June 28, 2023. 
Andri Tambunan | AFP | Getty Images

Mortgage interest rates surged last week to the highest level since early December, and that hit mortgage demand hard. Total application volume plunged 10.6% compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.06% from 6.87%, with points rising to 0.66 from 0.65 (including the origination fee) for loans with a 20% down payment.

“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near term rate cut,” said Mike Fratantoni, the MBA’s chief economist, in a release.

Applications to refinance a home loan dropped 11% last week, compared with the previous week, and were just 0.1% higher than the same week a year ago. One year ago, the 30-year fixed rate was 6.62%. Refinance volume had been running above year-ago levels, even with rates higher this year, but the jump in rates last week clearly made a refinance not worth it for most borrowers.

Applications for a mortgage to purchase a home fell 10% for the week and were 13% lower than the same week one year ago. They sat at the lowest level since early November 2023.

“Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” Fratantoni added.

With rates higher, the adjustable-rate mortgage share of activity increased to 7.4% of total applications. ARMs offer lower interest rates but are considered more risky because they can adjust higher after a fixed period.

Mortgage rates jumped even higher Friday after a monthly government report on wholesale prices showed inflation is still persistent and hotter than most analysts had expected. They have not moved much to start this week.

Don’t miss these stories from CNBC PRO:

Oil Markets in a Tightrope Walk: Supply Scarcity and Economic Woes

(Bloomberg) — Oil swung between gains and losses as financial markets remained under pressure, leaving prices stuck near the upper end of a narrow band they’ve traded in so far this year.

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Global benchmark Brent edged up above $82 a barrel while West Texas Intermediate traded around $77.50. The potential of restrained economic growth due to elevated interest rates has pushed traders away from risk assets including crude, a commodity often correlated to economic demand.

Still, physical markets continue to show signs of strength amid refined-product shortages. Brent’s prompt spread — the difference between its two nearest contracts — strengthened as high as 84 cents in backwardation, hovering at three month highs, excluding volatile contract-expiration dates.

Oil has remained in a roughly $10 trading range this year as the push and pull of bearish and bullish factors mute volatility. Attacks on ships in the Red Sea and the Israel-Hamas war have ramped up tensions in the Middle East and added a geopolitical risk premium to prices. Still, concerns about the outlook for China’s economy and its impact on consumption, as well as the pace of non-OPEC supply growth, are limiting gains.

The “oil price is expected to continue to be range-bound short term despite escalating tensions in the Middle East,” said Helge Andre Martinsen, a senior oil analyst at DNB Bank ASA. “Continued strong non-OPEC production data, from Norway and Canada this week, combined with a soft global economic outlook counter the effect of higher Middle East tensions.”

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Feature: US coal miners expand production, investment in relatively new met coal mines

Highlights

Warrior expands Blue Creek met coal mine in Alabama

Consol Energy increasing output at Itmann met coal complex

Arch Resources ramping up Leer South met coal mine

Metallurgical coal miners are chasing favorable prices in a tight market and forging ahead with development and ramp-up plans for relatively new mining projects in the US.

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Several US companies have focused more on metallurgical-grade coal used in the steelmaking process as demand for coal to generate power has waned. In recent years, major US coal companies have diverted investments in their thermal coal assets or even begun to wind down operations as capital flows to newer metallurgical coal projects.

Atlantic metallurgical coal prices have held fairly steady through the fourth quarter of last year and into this year amid tight supplies, S&P Global Commodity Insights data shows. The Platts assessed US East Coast Low Vol Hard Coking Coal price stood at $262/mt on Feb. 15, which although well down from a spike to $525/mt in March 2022, is healthy compared with 2019-2020 when it regularly traded in the low $100s/mt.

Expanding production

Warrior Met Coal invested $127.8 million in its Blue Creek growth project in the recent quarter, bringing total 2023 investment to $319.1 million, with additional expenditures of $325 million to $375 million planned for 2024. The company relaunched the development of the Alabama mine in May 2022 after a labor strike, COVID-19 and unfavorable market conditions delayed production.

In its Feb. 14 earnings release, the company said the mine is on track to produce its first development tons from continuous miner units in the third quarter. Executives expect the more productive longwall mining unit for the project to start up in the second quarter of 2026.

“Blue Creek represents one of the last remaining untapped premium quality high vol A coal reserves in the US, which should achieve premium prices,” the company said. The mine hosts reserves and resources totaling 119.3 million st and is estimated to have an operating life of 50 years.

Pennsylvania-based Consol Energy is also expanding production volumes, from its Itmann Complex. When Consol Energy, primarily a thermal coal producer, announced it would begin developing the complex in 2019, CEO Jimmy Brock called the West Virginia coal project the “next phase of our evolution.” However, Consol announced in 2020 that it was pulling back on capital spending and production to address lower coal demand.

The company transitioned the project from the development phase to its operations group as of the second quarter of 2023. The mine sold 159,000 st of coal in the fourth quarter of 2023, up from 123,000 st in the prior quarter, and has already secured contracts to sell 571,000 st in 2024, according to Consol’s earnings release.

“We expect more than a 36% increase in sales volume at the midpoint of our 2024 guidance compared to 2023 levels, and we have seen strong interest for our Itmann product in the domestic and export markets,” Brock said on a Feb. 6 earnings call. “I remain very excited about Itmann’s potential and the revenue diversification that having a low volume met product in our portfolio will bring.”

Similarly, Arch Resources is looking to increase production rates at its Leer South met coal mine as it progresses into a second longwall district later this year.

“Despite somewhat lackluster steel market fundamentals, coking coal markets appear reasonably well supported at present,” CEO Paul Lang said on a Feb. 15 earnings call. “The primary reason that coking coal markets remain well supported in our estimation, is constrained supply stemming from ongoing reserve degradation and depletion, accounting and regulatory pressures, limited capital availability and persistent underinvestment.”

The company first said the “time has come” to finally develop the long-discussed complement to its Leer mine in February 2019.

Arch Resources acknowledged on an October 2023 earnings call that the Leer South mine ran into a thinning coal seam that curbed output, but COO John Drexler said at the time that a new drilling program would help the company develop the site into a “great mine on the order of Leer in 2025.”

On the Feb. 15 call, Drexler said that Leer South did see slower-than-normal advance rates and lower-than-normal yields in the first two months of the fourth quarter, but the mine has since made up for much of the lost time.

“We expect better mining conditions in a materially thicker coal seam as the Leer South longwall advances into District 2 based on our significantly expanded drilling program,” Drexler said. “At a time when many of our competitors are wrestling with the migration to less advantageous and higher-cost reserves, we are fortunate to be moving in the opposite direction.”

Advancing languishing projects

St. Louis-based coal miner Peabody Energy announced Feb. 8 that longwall production started at its Shoal Creek mine ahead of schedule, producing 338,000 st from the newly developed district at the mine. The company was able to commence longwall production early despite a fire at the mine in March 2023.

Peabody purchased the Alabama mine from Drummond for $387 million in late 2018 but has yet to take full advantage of its relatively new asset. By October 2020, the company temporarily idled the mine, citing weak demand, low productivity rates, and adverse geological conditions. A restart of the mine was also delayed by a worker strike in 2021.

“When it comes to the seaborne met market, we are quite encouraged by what we saw during [the fourth quarter] with increased crude steel production rates outside of China, and we expect those rates to continue during [the first quarter and into the second quarter],” said Malcolm Roberts, Peabody’s chief marketing officer. “We also are encouraged in the metallurgical coal space by very constrained supply… We still see supply challenges moving through 2024.”

Alpha Metallurgical Resources, another major metallurgical coal producer in the US that announced the closure of its last thermal coal mine in the third quarter of 2023, is hosting its earnings call on Feb. 26. Ramaco Resources Inc., another US metallurgical coal producer, has yet to announce its fourth-quarter earnings release date.

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