How About Our Economy?

Not only are Orion’s AEs well-versed in the loan programs to help our clients help your borrowers, but also in current economic trends. In this first week of June we find forecasts actually expecting lower rates ahead!

Our clients should know that Federal Reserve Chairman Powell recently noted that there were “crosscurrents” that were impacting the U.S. economy when he recently discussed the outlook for monetary policy. Orion wants our brokers to help their borrowers understand the economy to help them make good decisions in the future.

Exports and the housing market are exerting some headwinds on growth at present and business fixed investment is moving more or less sideways, but consumer and government spending are both growing at strong rates. The FOMC (Federal Open Market Committee) has said that it can be “patient,” and most market participants currently believe that the Fed is done hiking rates, or at least will remain on hold in coming months as it assesses the outlook for the U.S. economy. Due to the trade wars and tariff hikes, our economy is expected to slow in the future. But if the economy were to grow at an above-trend rate in coming months, then the FOMC will likely tap on the brakes again with a .25% rate hike in the early autumn.

The housing market appears to be swimming against the current at present, with the rise in mortgage rates and the marked increase in home prices in many parts of the country over the past few years eroding affordability. The rate on the 30-year fixed-rate mortgage has declined and is now around 4%, or less. Business has picked up for Orion. Furthermore, improvements to the existing housing stock, which account for roughly one-third of total residential investment, continue to grow at a solid rate.

Those categories of spending and others are either exerting some headwinds on the rate of real GDP growth in the United States or they are not adding much momentum at present. Fortunately, government spending, and personal consumption expenditures (PCE) have increased as of late. Rates of PCE inflation are currently near the Fed’s target of 2% and showing few signs of moving higher at this time. If sustained, a tightening in overall financial conditions could lead to slower economic growth.

Although viewed as unlikely, if the economy continues to grow at an above-trend pace, which would cause the unemployment rate to recede further, the FOMC could decide to bump rates up again 25 bps in late summer/early autumn. But for now, there is talk of rate cuts by the Federal Reserve rather than rate increases.

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