The tariffs imposed by President Donald Trump have garnered swift reaction, including China’s retaliatory tariffs, which will take effect on April 10, but their true effects on any trade war remain to be seen in the coming weeks.
Financial and equities markets were rocked by the latest administration tariff announcement, which added new tariffs of varying amounts on just about all trading partners.
While this might not mean ongoing inflation, tariffs will certainly raise measured prices in the near term, making it harder for the Fed to parse incoming data and raising the risk of a policy mistake.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” said Fed chairman Jerome Powell during a speech on Friday at the Society for Advancing Business Editing and Writing Annual Conference. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Concerns about slower economic growth as businesses and consumers scramble to adjust and policy uncertainty delays investment decisions drove equities lower and bond prices higher, pushing interest rates down.
The latest jobs report showed that companies continued to add jobs in March, with hiring ticking higher. The Department of Government Efficiency cuts were evident in this report, with the Federal workforce shrinking for a second month. Meanwhile, the unemployment rate edged up again and wage growth continued, but at a slower pace.
Last week, I discussed growing consumer concerns in the consumer confidence data, with expectations about the next six months falling to a 12-year low. Despite concerns, so far, signals from the labor market remain relatively healthy.
These new trade policy developments were not yet tracked in this week’s market mortgage rates, which dropped just 1 basis point, remaining within the fairly narrow 6.6% to 6.7% range they’ve occupied for five weeks now. This means that mortgage rates are likely to move lower in next week’s update, and shoppers working with a lender are already likely seeing lower rates.
Whether these lower rates will lead to an increase in housing activity remains to be seen. The Realtor.com March Housing Trends report shows that sellers actively engaged with the housing market, putting more homes up for sale this year compared with last. The data suggests that buyers were a bit more reserved, with pending home sales in many major markets trending lower even as shoppers had more options to choose from and asking prices were flat. Weekly data shows that these trends were fairly consistent throughout the month.
The uptick in seller activity is notable because even as the lock-in effect eases, the gap between today’s market rates and the rate many homeowners have on their current mortgages is quite large. In fact, the latest data shows that 82% of homeowners with a mortgage had a rate below 6%, down from 87% one year ago.