Note: Mortgage rates are from MortgageNewsDaily.com and are for top tier scenarios.

Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:30 AM, The Consumer Price Index for February from the BLS. The consensus is for a 0.3% increase in CPI, and a 0.3% increase in core CPI.  The consensus is for CPI to be up 2.9% Year-over-year (YoY), and core CPI to be up 3.2% YoY.

From housing economist Tom Lawler:

From the beginning of 2020 to early June of 2022 the Federal Reserve’s balance sheet more than doubled to an almost inconceivable $8.9 trillion, with almost all of the gain reflecting increases in the Federal Reserve’s holdings of Treasuries and Agency MBS.
Most of these gains in Treasury and Agency MBS assets were “funded” with increases in very short duration interest-bearing Federal Reserve liabilities, mainly deposits of depository institutions (reserves) and Reverse Repos.

The Federal Reserve began the process of gradually reducing the size of its balance sheet in early June, and from June 8, 2022 to February 26, 2025 the Federal Reserve’s balance sheet had declined to a little under $6.8 trillion, with most of the decline reflecting decreases in Treasury and Agency MBS holdings. At the same time Federal Reserve short-term interest-bearing liabilities fell by a similar but slightly smaller amount.

Click on table for larger image.

The sizable increases in Federal Reserve assets both after the financial crisis and after the COVID period mainly reflected the purchase of long duration Treasuries and Agency MBS, while the large increases in Federal Reserve liabilities during these periods mainly reflected sizable increases in Federal Reserve short-term interest bearing liabilities (though Federal Reserve Notes – currency in circulation – and Treasury General Account balances also rose). Both of these periods, characterized as “quantitative easing,” were designed in part to lower longer-term interest rates (and mortgage rates) by reducing the amount of long-duration Treasuries and Agency MBS held by the private sector and increasing the amount of short duration Federal Reserve liabilities held by the private sector (including banks).

Given the significant declines in Federal Reserve holdings of Treasuries and Agency MBS since early 2022, the uninformed (such as Treasury Secretary Bessent) might conclude that the Federal Reserve has been a big net seller of Treasuries and MBS over that period. Indeed, IF the Fed had chosen to reduce its balance sheet size by selling long duration Treasuries and MBS over this period and used the proceeds to reduce its short-duration interest-bearing liabilities, then this period would indeed be one that could be characterized as “quantitative tightening.”

However, that is not what the Federal Reserve did over this period. On the Agency MBS front the Federal Reserve has been letting its MBS holdings run off by not reinvesting principal repayments into new MBS. And on the Treasury front the Federal Reserve has reinvested some (but not all) of the Treasuries that have been maturing (which by definition are short duration) into intermediate and long maturities, with the amount reinvested determined by “caps” and targeted balance sheet levels.

Because there has been a sizeable amount of Fed Treasury holdings maturing in any given year, and since the amount maturing in any given year significantly exceeded the Fed’s targeted balance sheet reduction, on net the Federal Reserve has been a sizable net buyer of Treasury securities from 2022 to 2025. Moreover, since its reinvestment strategy has been to buy mainly Treasury notes and bonds that “sorta” reflected the maturity of Treasury notes and bonds outstanding (but not total Treasury debt outstanding, which includes a large amount of Treasury bills), the net result has been that while total Fed Treasury holdings have declined, the average maturity of Fed Treasury holdings has increased significantly, and the gap between the average maturity of Fed Treasury holdings and that of marketable Treasury securities has widened significantly.

Inquiring minds might want to know why the Federal Reserve did not achieve its balance sheet targets by selling longer maturity/duration assets it had previously purchased. While the Fed has never really explained why it didn’t, implicitly there are three reasons: first, the Fed was concerned that large-scale assets sales would be “disruptive” to the markets; second, the Fed did not want to book large losses, which would increase its deferred remittances to the Treasury; and third, the Fed wanted to keep in place some of its “quantitative easing;” that is it did not want to engage in quantitative tightening, but instead just wanted to have a little less quantitative easing than before.

Focusing now just on Treasury holdings, below is a table comparing Fed Treasury holdings and marketable Treasury debt outstanding at the end of February 2025.

There are several things to note from this table. First, the average maturity of all Fed Treasury holdings as of the end of February was 8.952 years, over 3 years longer than the average maturity of Treasury marketable Treasury debt outstanding. If one just looks and Treasury bill, note, and bond holdings (it is not clear how TIPS holdings might impact the yield curve), the average maturity of Fed holdings was 9.003 years, 3.1 years longer than that for marketable Treasury bills, notes, and bonds outstanding. This is NOT a “neutral” stance when it comes to the Federal Reserve’s balance sheet, but instead reflects the fact that quantitative easing remained in force.

Second, the Fed only held a paltry 3.1% of marketable Treasury bills outstanding at the end of February, and Treasury bills accounted for a measly 4.7% of total Fed Treasury holdings. By way of comparison, Treasury bills accounted for 35% of total Fed Treasury holdings at the end of 2006.

And third, the Fed held a staggering 30% of marketable Treasury bonds maturing in over 10 years at the end of February, and 10+ maturity Treasury bonds were 34% of total Fed Treasury holdings.

Below is a comparable table for the end of 2022.

While the Federal Reserve’s balance sheet at the end of February 2025 was significantly lower than it was at the end of 2022, the “gap” between the average maturity of Fed Treasury holdings and marketable Treasury debt outstanding at the end of February 2025 (just over 3 years) was significantly wider than was the case at the end of 2022 (just under 1.6 years). Obviously, the decline in the size of the balance sheet significantly overstates the degree to which the Fed’s balance sheet has reduced the degree of quantitative easing over this period.

What seems especially surprising over this period is the Fed’s decision to reduce its holdings of Treasury bills. If the Fed wanted to reduce the degree of quantitative easing while at the same time limit the speed with which the total balance sheet fell, an obvious way to do this would be to reinvest “excess” Treasury maturities into Treasury bills. (After all, Treasury notes close to maturity are by their nature short maturity assets!) And second, the Fed held less than 8% of total Treasury bills outstanding at the end of 2022, compared to almost 27% of Treasury notes and bonds outstanding, suggesting ample room to increase Treasury bills relative to Treasury notes and bonds.

The Fed instead over this period reinvested significant amounts (net about $450 billion) of “excess” maturities into Treasury notes and bonds that had a weighted average maturity at the end of February of about 8 years, and obviously a higher weighted average maturity at the time of purchase. (e.g., a 10-year Treasury purchase at the end of February 2023 would be have an 8 year maturity at the end of February 2025). I “guesstimate” that the weighted average maturity of net purchases by time of purchase over this period was about 8.7 years.

What if the Federal Reserve had instead reinvested ALL of the “excess” Treasury maturities (that is, it kept its total balance sheet target the same) in Treasury bills?
Here is what the Fed’s balance sheet would have looked like at the end of February.

As the table shows, an “all TBill” strategy for reinvesting “excess” maturities would have reduced the weighted average maturity of Federal Reserve Treasury holdings by almost a full year, and while that WAM would still be higher than that of all marketable Treasury debt outstanding, it would at least have represented some progress in moving the Federal Reserve holdings to a more “neutral” level.

Some might wonder if such a large increase in Tbills might be disruptive. I would argue not, as this Tbills reinvestment strategy would still have left the Fed’s share of all Tbill outstanding at the end of February at just 10.5%, compared to the Fed’s share of all Treasury notes and bonds outstanding of 16.1%.

However, the Federal Reserve has instead continued a reinvestment strategy that materially reduces the average maturity of private sector government obligations (via its Treasury security holdings and its short-term liabilities). And by letting its still sizable ($2.2 trillion) Agency MBS portfolio with an estimate weighted average life of 8 ½ – 9 years to just slowly roll off adds even more to this private-sector maturity “transformation.”

So net, one could (and should) say current Federal Reserve balance sheet policy is still in a quantitative easing mode, but just not quite as much so as it was several years ago. This may be one reason why the yield curve was inverted so long without “triggering” a recession, and why Treasury term premium remain historically low (though not as low as a few years ago).

Looking ahead, it is quite possible that when the Fed finally decides to stop reducing the size of its balance sheet, it will also work to reduce the average maturity of its Treasury holdings. Here are a few excerpts from the January meeting minutes. (My bolds)

“A number of participants also discussed some issues related to the balance sheet. Regarding the composition of secondary-market purchases of Treasury securities that would occur once the process of reducing the size of the Federal Reserve’s holdings of securities had come to an end, many participants expressed the view that it would be appropriate to structure purchases in a way that moved the maturity composition of the SOMA portfolio closer to that of the outstanding stock of Treasury debt while also minimizing the risk of disruptions to the market.

Next, the deputy manager briefed policymakers on possible alternative strategies that the Committee might follow with regard to purchases of Treasury securities in the secondary market after the eventual conclusion of the process of balance sheet runoff. These strategies would further implement the policy laid out in the Committee’s Principles and Plans for Reducing the Size of the Federal Reserve’s Balance Sheet. The briefing outlined a few illustrative scenarios; under each scenario, principal payments received from agency debt and agency mortgage backed securities (MBS) holdings would be directed toward Treasury securities via secondary-market purchases. The scenarios presented corresponded to different trajectories of the holdings of Treasury securities in the SOMA. Under all scenarios considered, the maturity composition of Treasury holdings in the SOMA portfolio moved into closer alignment with the maturity composition of the outstanding stock of Treasury securities. The scenarios differed on how quickly this alignment would be achieved and, correspondingly, on the assumed increase over coming years in the share of Treasury bills held in the SOMA portfolio.”

Given the huge current gap between the maturity of SOMA holdings and the maturity of marketable Treasury debt outstanding, presumably these comments suggest that when the Fed decides to stop shrinking its balance sheet, it might also REDUCE its purchases of long-term Treasuries!!!

However, that is just a maybe, and in the interim the Fed has continued to be a large net buyer of intermediate- and long-term Treasuries.

To end this very long article, here is a list of SOMA purchases (add-ons) of Treasury notes and bonds at this year’s auctions to date.

This was from housing economist Tom Lawler.

Today, in the Calculated Risk Real Estate Newsletter: 2nd Look at Local Housing Markets in February

A brief excerpt:

NOTE: The tables for active listings, new listings and closed sales all include a comparison to February 2019 for each local market (some 2019 data is not available).

This is the second look at several early reporting local markets in February. I’m tracking over 40 local housing markets in the US. Some of the 40 markets are states, and some are metropolitan areas. I’ll update these tables throughout the month as additional data is released.

Closed sales in February were mostly for contracts signed in December and January when 30-year mortgage rates averaged 6.72% and 6.96%, respectively (Freddie Mac PMMS). This was an increase from the average rate for homes that closed in January, and up slightly from the average rate of 6.7% in December 2023 and January 2024.
…
Here is a look at months-of-supply using NSA sales. Since this is NSA data, it is likely months-of-supply will increase into the Summer.

Months in red are areas that are seeing 6 months of supply now and will likely see price pressures.
…
This was just several early reporting markets. Many more local markets to come!

There is much more in the article.

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 7.7 million in January, the U.S. Bureau of Labor
Statistics reported today. Hires held at 5.4 million, and total separations changed little at 5.3 million.
Within separations, quits (3.3 million) and layoffs and discharges (1.6 million) changed little.
emphasis added

The following graph shows job openings (black line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for January; the employment report last Friday was for February.

Click on graph for larger image.

Note that hires (dark blue) and total separations (red and light blue columns stacked) are usually pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs – when it is below the columns, the economy is losing jobs.

The spike in layoffs and discharges in March 2020 is labeled, but off the chart to better show the usual data.

Jobs openings increased in January to 7.74 million from 7.51 million in December.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Recover Some of Last Week’s Losses

Bonds are once again paying attention to weakness in stocks–it just happened to take a bigger drop in stocks that we saw last week. Despite the improvement in rates, we would still expect some resistance to the idea of rapid improvement unless the economic data begins to sound the same warnings as equities markets.

On that note, the most relevant econ data on the near-term horizon is Wednesday’s Consumer Price Index (CPI), the first of the broad measures of inflation in the U.S. and one of the biggest potential sources of volatility for rates. [30 year fixed 6.72%]
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for February.

• At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS.

From the Association of American Railroads (AAR) Rail Time Indicators. Graphs and excerpts reprinted with permission.

Uncertainty shapes economic cycles — fueling booms,
triggering busts, and driving debates about what comes
next. Uncertainty abounds in the railroad industry too,
where evolving demand, market conditions, and
economic policies constantly create both challenges
and opportunities.

…

For now, both rail traffic and the broader economy
reflect a mix of strengths and weaknesses, with some
sectors proving resilient while others struggle in the
face of shifting conditions.
emphasis added

Click on graph for larger image.

This graph from the Rail Time Indicators report shows the year-over-year change for carloads, carloads ex-coal, and intermodal.

In February, intermodal performance was again
strong, with volumes rising 6.4% (66,340 units) year
over-year. Originations averaged 276,654 units per
week, the most ever for a February. This strength
reflects solid consumer spending and, in part, efforts
by some importers to expedite shipments in anticipation
of tariffs.
…
U.S. railroads originated 843,618 carloads in February,
down 4.5% from last year. Carloads rose fractionally in
January, their first increase in five months. In February,
severe floods in the Northeast and frigid temperatures
in the upper Midwest and much of the rest of the
country constrained rail operations and the ability of rail customers to load and unload freight. Without these
weather issues, rail volumes likely would have been higher.

Today, in the Calculated Risk Real Estate Newsletter: Part 1: Current State of the Housing Market; Overview for mid-March 2025

A brief excerpt:

This 2-part overview for mid-March provides a snapshot of the current housing market.

Inventory, inventory, inventory! Inventory usually tells the tale. Currently I’m watching months-of-supply closely.
…

Since both inventory and sales have fallen significantly, a key for house prices is to watch months-of-supply. The following graph shows months-of-supply since 2017. The following graph shows months-of-supply since 2017. Note that months-of-supply is higher than 6 of the last 8 years, and at the same level as in 2017.

Months-of-supply was at 3.5 months in January 2025, up from 3.0 months in January 2024, and down from 3.8 months in January 2019. Note that December and January usually have the lowest months-of-supply.

This suggests that year-over-year price growth will continue to slow. Inventory would probably have to increase to 5 1/2 to 6 months of supply to see national price declines again.

There is much more in the article.