Powell Signals Inflation is More Important than Labor

Stocks are sharply lower and Mortgage Bonds are trading near unchanged levels so far this morning.

Yesterday, Fed Chair Powell explained that they may be put in a very tough position, where the unemployment rate is rising, inflation is rising, and the economy is slowing down.

He sounded pretty hawkish in his speech, and signaled that inflation is more important than labor by stating that, “without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.”

He also denied that the Fed would be there to help the Stock market should it continue to falter…but if things got bad enough, he may change his tune.

Potentially adding some pressure to our Fed to cut is the ECB, who cut rates 25bp this morning. This is helping the dollar get a little bit of a bid so far.

In response to Powell’s comments, Trump posted on Truth Social and said, “Powell’s termination cannot come fast enough.” His term is up May 15, 2026, so he has about 13 months left.

NAHB Housing Market Index

The April NAHB Home Builder Sentiment Index rose 1 point to 40. Here is a deeper breakdown:

Current Sales Conditions: rose 2 points to 45

Sales Expectations: fell 4 points to 43

Buyer Traffic: rose 1 point to 25

While this report rose slightly overall, confidence is weak, as there is a lot of uncertainty. When builders do not know what their costs will be, they are going to be more hesitant. Additionally, with Stocks moving lower there is a negative wealth effect taking place where people feel less wealthy when looking at their portfolios. Lastly, rates are a bit higher, which is also weighing on their confidence.

Builders are estimating that the tariffs are causing the average price to build a home to rise by roughly $11,000.

Housing Starts and Permits

Permits were a little higher in March, but that is like a max number of new supply coming to market because you don’t know how many of them will get done. A lot of those permits may not come to fruition with the increase costs due to tariffs.

The majority of starts will get done, and that fell sharply from 1.494M to 1.324M. At the same time, average household formations over the last five years is 1.8M…so supply is not keeping up with demand.

The amount of houses getting completely on an annualized basis is 1.55M. While that’s more than the starts, it is not forward looking and is still beneath completions.

Bottom line – more demand than supply should be supportive of home prices into the future.

Initial Jobless Claims

Initial Jobless Claims, which measures individuals filing for unemployment benefits for the first time, fell 9,000 to 215,000.

Continuing Claims, or those who continue to receive benefits after their initial claim, rose 41,000 to 1.885M. Continuing Claims remain elevated and at some of the highest levels since 2021, showing that once you are let go, there is less hiring happening and it’s harder to find a job.

Technical Analysis

Mortgage Bonds are now trading in a range between support at the 100-day Moving Average and overhead resistance at the 200-day Moving Average, which Bonds have now been rejected from for the second day. If this level is broken, there is the 50-day and 25-day not far from current levels so there is some tough sledding ahead. Momentum, however, is on our side when looking at the Stochastic indicator.

The 10-year closed right on its 25-day Moving Average yesterday, which stopped the decline in yields. It opened up on it and has moved a bit higher. So far this level is holding, but if it’s broken, the next stop is the 200-day at 4.23%. Once again, momentum is in our favor and does point to more room for yields to continue lower.