Investors, traders, money managers are either VERY right or VERY wrong – Both present challenges

Mortgage rates got better last week but only returned closer to where they were 2 weeks ago. The mortgage rate story over the last year has been mostly about the Federal Reserve’s attempts to squash inflation and reduce their balance sheet. In the wake of that, mortgage rates have been on a tear upwards since last year and the month of July 2023 has seen more interest rates moves for the better and worse in relation to where everyone THINKS the puck goes to next. With the next Fed meeting right around the corner everyone is reacting super quickly to inflation and jobs data as THOSE TWO things weigh heavily on the Fed’s next decision more than anything else. And even the idea of inflation and jobs being inextricably linked might be weakening, because unemployment is still way lower than the Fed wants long term, but inflation is slowing in line with what they have been hoping to see. In short, it doesn’t look like the “strong labor market” is aiding inflation anymore, so how the heck will they get unemployment up to 4.5%?!?! That question…still remains UN-answered. Thus, like a sailboat stuck out at sea, mortgage rates continue to get whipped around by the influence of data dependent decision making coming from the powers that be.

The question that dominates looking forward is whether the Fed will pass on another rate increase at the next FOMC meeting? Of course, there are varying opinions but I believe the Fed will follow-through with what most Fed officials are indicating. There’s a 92% chance the Federal reserve will increase their rate at the next meeting, and the NEW change is July’s hike could be…could be…the final one. It will certainly take more data to support that theory; however, with both ears and eyes open I can’t ignore that there’s already been a few hints that THAT could be the case.

What has me scratching my head is the idea that Investors, traders, money managers, and markets think the Fed may begin lowering rates by the end of the year – They already said they would NOT be doing that.

So:

A) These people don’t believe the Fed is being honest.

B) These people think there’s something un-named lurking around that would cause the Fed to begin lowering their rate before end of year, or

C) they’re anticipating such great pain to the economy from the current rate impacts that a rate drop would be necessary to prevent an all out catastrophe.

So which one is it?… “D – ALL THE ABOVE”?!? This is honestly, so wacky!

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And here’s a quick look at what’s coming up in the markets this week:

Monday: Empire State Manufacturing Index

Tuesday: CORE Retail Sales and Retail Sales

Wednesday: Building Permits & Housing starts

Thursday: Unemployment Claims & Existing Home Sales

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