- Agency issuance totaled $2.3 billion last week, comprising $1.1 billion of Freddie K and Multi-PC transactions, $874.8 million of Fannie DUS, and $328.2 million of Ginnie transactions.
- Agency issuance for the year totaled $33.8 billion, 30% higher than the $26.1 billion for the same period last year.
The Economy, the Fed, and Rates…
Economic Data
March Jobs Report Exceeds Forecasts: Nonfarm payrolls increased by 228,000 in March, well above the Wall Street consensus estimate of 140,000. This strong performance suggests the labor market was holding up well before President Trump's aggressive tariffs start making their way through the economy. The unemployment rate ticked up to 4.2% from 4.1%, largely due to rounding effects.
Manufacturing and Services Weakness: The ISM Manufacturing PMI slipped into contraction in March, while the Services PMI pointed to slower expansion. Most indicators of services activity fell below their 10-year averages – including employment, which slipped into contraction. Tariff front-running likely supported activity measures in March, masking further weakness beneath the surface.
Job Market Outlook Deteriorates: Some economists expect the impact on the labor market to be severe, with projections for unemployment to rise nearly a percentage point to 5% this year. Bloomberg economists
project the unemployment rate could reach 4.8% by the fourth quarter as the economy absorbs the impact of tariffs.
JPMorgan Forecast: JPMorgan economists
raised the odds of a recession in the global economy to 60% from 40% previously. Chief U.S. economist Michael Feroli now expects real GDP to contract, projecting growth of -0.3% for the full year (4Q/4Q), down from 1.3% previously.
Bear Market Implications: According to
research by Ned Davis Research, bear markets accompanied by recessions had a median duration of 528 calendar days and a market decline of 32.8%. Bear markets that occurred without recessions had a median duration of 224 days and a decline of 23.3%.
Federal Reserve Policy
Powell's Cautious Stance: Fed Chair Jerome Powell said it was "too soon to say what will be the appropriate path for monetary policy," but expressed concern that the economic impact of new tariffs will likely be "significantly larger than expected" and could include "higher inflation and slower growth."
Inflation Concern: Powell warned that while tariffs would generate "at least a temporary rise in inflation, it is also possible that the effects could be more persistent." He emphasized the Fed's "obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem."
Policy Dilemma: The combination of higher prices and weaker growth poses a dilemma for the Fed. In a
moderated discussion, Powell acknowledged that the combination of higher unemployment and higher inflation would be "difficult" for the Fed to navigate given its dual goals of fostering a healthy labor market and low, stable inflation.
Rate Expectations Shift: Money markets are now fully
pricing in four quarter-point rate reductions by year-end, with rising odds of a fifth cut – up from just three cuts priced in before the levies were announced. However, Bloomberg Economics now projects the Fed is likely to cut rates only once this year, by 25 basis points, as it prioritizes its price-stability mandate over its full-employment goal.
Inflation Projections: Alan Detmeister, a former Fed economist now at UBS,
forecasts that the Fed's preferred inflation gauge could spike to around 4.5% by the end of the year before peaking close to 5% in early 2026 as growth slows. Inflation could remain stuck around 3% into 2027.
Trump's Tariff Policy
Historic Tariff Levels: President Donald Trump announced "reciprocal tariffs" that were higher and more extensive than anticipated, raising the average U.S. tariff rate to nearly 22%,
its highest level in over a century. Bloomberg Economics estimates this represents a jump from 2.3% in 2024.
Market Response: Stock markets plunged, with investors pricing in higher near-term inflation expectations and lower interest rates. The dollar
fell – contrary to what standard economic models would predict. The S&P 500 suffered its worst two-day plunge since March 2020, with the gauge down 6% on Friday.
Global Retaliation: China announced a 34% tariff on all U.S. goods starting April 10, in addition to targeted actions against poultry producers and weapons makers. This retaliatory move intensified fears of a global trade war and caused stocks to take another leg lower on Friday.
Market Value Destruction: Over a two-day period, U.S. markets lost more than $5.4 trillion in market value as Federal Reserve Chairman Jerome Powell indicated that the Trump administration's tariffs "could have a persistent impact on inflation." The Nasdaq 100
entered bear market territory, with a 20% drop from its February peak.
Consumer Impact: A Yale Budget Lab
analysis found that Trump's overall tariffs could cause price levels to rise 2.3% in the short term, translating to an average loss of $3,800 in purchasing power per household based on 2024 dollars.
Treasury Yields and Bond Market
Plunging Yields: Treasury yields have plunged in the two days following President Trump’s “
Liberation Day” announcement, reflecting deepening concerns about the economic impact of tariffs. The yield on the benchmark 10-year Treasury note settled Friday at 3.99%, down 26 bps from the prior week and down from 4.79% in January.
Unexpected Bond Rally: Treasury Secretary Scott Bessent had been seeking lower Treasury yields to reduce government borrowing costs, as well as those of businesses and consumers. However, the bond rally has been "particularly noteworthy because it has happened even though investors are worried that Trump's policies could lead to higher inflation and a larger budget deficit" – conditions that would normally push yields higher.
Fed vs. Market Views: Many investors had been hesitant to buy Treasury bonds because they believed Fed policymakers would remain cautious about cutting rates, with inflation above their 2% target. However, concerns about growth have been brushed aside as investors focus "almost entirely on the threat of a stumbling economy and the prospect for rate cuts."
You can download CREFC’s one-page
MarketMetrics, which includes statistics covering the economy and the CRE debt capital markets,
here.
Contact
Raj Aidasani (
raidasani@crefc.org with any questions.