Government Stays Open – Mortgage Rates Will Rise To End 2023

For all the talk about what parts of the government would get shut down if the budget didn’t pass, it all turned out for naught. Which is good, because I really didn’t wanna sit here this week and weigh the impacts of a partial government closure on the markets, how long closures would last, and then tap dance around the data next time the Fed comes to the plate in November. So with that said, all the pressure in October & November will be on the politicians in DC plus the Federal reserve members. And I have to say, the horizon doesn’t look too favorable for any of them.  These coming weeks are absolutely stacked to the rafters with discussions, data, and decisions that will make major impacts in 2024 and beyond. Let the jockeying for position begin, while the mortgage and real estate markets are subject to continue being plagued with the current hand we’re dealt.

In case you missed it. Two Fed officials last week said at least one more rate hike is possible and that borrowing costs may need to stay higher for longer for the central bank to ease inflation back to its 2% target. While Boston Fed President Susan Collins said further tightening “is certainly not off the table,” Governor Michelle Bowman signaled that more than one increase will probably be required. On Friday, the August PCE inflation report, the core year/year forecast came in at 3.9% down from 4.2%. Jerome Powell continues to look mostly at the core (excluding food and energy) although with energy prices, increasing higher costs will likely feed through the economy. Therefore it DOES impact what we pay at the registers despite everyone wanting to strip out those costs from other inflation measurements. Have you every baked a cake and then tried to take two ingredients out? Of course not, all the ingredients are necessary and when you try to remove SOME ingredients, you end up messing up the flavor of the cake. This is akin to skewing the impact in the wallets of consumers out of convenience for a “less volatile” metric. Look, we all pay for food and energy EVEN when they are volatile….so c’mon guys!

Did you hear what Jamie Dimon said last week?!?! Don’t look to JPMorgan CEO Jamie Dimon to calm things down, as he warned that even a 7% Fed funds rate is possible – that’s a long way from where we’re at right now. This seems to be a shot across the bow that Investors need to be prepared for 7% fed funds rates because he believes most of them aren’t. That’s a stark warning from JPMorgan Chase CEO Jamie Dimon over potential risks for the U.S. economy. “Going from zero to 5% caught some people off guard, but no one would have taken 5% out of the realm of possibility. I am not sure if the world is prepared for 7%,” Dimon said in an interview with the Times of India. So will this come to pass? Or is he taunting the Federal reserve? Is he factoring other aspects of reinflation that would require rates to go even higher in 2024 before everyone can claim victory? Look, all I know is that EVERYONE’S tone has changed this fall, and we should take note of that. Clearly – transitory, soft landing, and some pain are no longer options…listen up for a new buzzword in an effort try and describe what’s about to happen next.

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So with that, let’s take a quick look at what’s coming up in the markets this week. THIS week is stuffed with a ton of activity, and now that the government budget drama is resolved temporarily this week’s economic information can hit us without any asterisks that would have come from a shut down.

Monday: ISM Manufacturing PMI and Prices come out. Fed Chair Jerome Powell speaks along with fed members Harker and Barr. This could be interesting now that they’ve made their decision to pause raising rates AND the government passed a 45 day continuing resolution to keep the government open. Let’s see what these Fed members have in store for us this week!

Tuesday: JOLTS Job openings comes out and the fed really cares about this one. With just a few short weeks until their November meeting, Jobs data will be a primary focus.

Wednesday: ADP Non-Farm Payroll Employment Change, ISM Services PMI, and two more fed members speak

Thursday: Unemployment change, and Fed Member Barr speaks for the second time this week.

Friday: Average Hourly Earnings month over month, non-farm employment change, unemployment rate, Fed Member Waller speaks.

This is quite a bit for one week. And I have to tell you, I’d rather have all these fed members speaking and all this data coming out with one another so that we can try and put the pieces of this puzzle together rather than blindly guessing what’s to come.

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