Fed’s Collins Says Inflation Fight Will Take ‘Longer Than We Thought’

6 hr 56 min ago

High interest rates are showing signs of working to bring down price pressures, but the data still isn’t painting a clear enough picture yet for the Federal Reserve to make a change to interest rates, said Boston Federal Reserve President Susan M. Collins Wednesday.

“I do remain optimistic that this can be accomplished in a reasonable amount of time, and with a labor market that remains healthy, but there is a significant amount of uncertainty around that outlook,” Collins told a Massachusetts Institute of Technology audience. “It’s just going to take longer than we thought.”

Interest rates, which are at a 23-year high, are “moderately restrictive,” but high enough to eventually cool rapidly increasing inflation. Collins also said it could take more time for interest rates to work, noting the effects of past rate hikes are usually seen within four to six fiscal quarters. The Fed has held interest rates at the current 5.25% to 5.5% for about three fiscal quarters.

“It’s too soon to tell how restrictive we’re being,” said Collins, whose remarks mirrored other recent Fed speakers who have predicted that interest rates would need to stay at their current levels for longer than originally expected. 

Also today, Federal Reserve Gov. Lisa D. Cook spoke on fiscal stability, with her comments largely avoiding the subject of monetary policy.

While Cook laid out some risks to U.S. fiscal stability, most were largely manageable, she said.

The deposit flow issues that collapsed Silicon Valley Bank and other institutions last year had largely been resolved, with banks relying less on uninsured deposits.

And while commercial real estate risks existed for small- and medium-sized banks, as well as insurance companies, Cook said those risks were “sizable but manageable.” 

Additionally, Cool said while housing values are growing rapidly, there isn’t the same underlying weakness that helped set off the 2006 housing market collapse.

“The house-price growth we have seen over the past few years has not been accompanied by increased lending or weaker credit standards, as was the case in the early 2000s. The household sector also is much more resilient than in 2006,” Cook said. 

Wholesale Inventories Down in March as February Data Also Lowered

12 hr 35 min ago

Wholesale inventories declined in March but were not any worse than economists expected.

Wholesale merchants carried $894.7 billion in inventory at the end of March, 0.4% less than February’s totals. February’s numbers were revised to reflect a 0.2% increase, instead of the 0.5% that the Census Bureau originally reported. Economists surveyed by the Wall Street Journal and Dow Jones Newswire projected the 0.4% decline. 

The report showed the inventories-to-sales ratio for wholesales was 1.35, a slight increase when compared with the previous month, showing that products moved a bit more slowly in March. The inventories-to-sales ratio came in lower than the year-ago level. 

-Terry Lane

Mortgage Applications Increase on First Decline in Rates in Three Weeks

15 hr 5 min ago

The first drop in borrowing costs in three weeks helped spur demand for home loans last week, as mortgage application volume increased 2.6%, according to data from the Mortgage Bankers Association (MBA). 

The average 30-year, fixed-rate mortgage dropped to 7.18% in the week ending on May 3, the MBA data showed. 

“Treasury rates and mortgage rates fell last week on the news of a slowing job market, with wage growth at the slowest pace since 2021,” said Mike Fratantoni, MBA senior vice president and chief economist. 

Applications for Federal Housing Administration (FHA) loans were up by 5%, which helped push purchase activity up by 2% on the week. FHA-backed 30-year, fixed-rate mortgages fell to 6.92%, also moving lower for the first time in three weeks. 

“First-time homebuyers account for roughly half of purchase loans, and the government lending programs are an important source of financing for these homebuyers,” Fratantoni said.

More homeowners also applied to refinance their loans, increasing by 5%, the MBA data showed. 

-Terry Lane