Jerome Powell & The Fed Prepared to Raise Rates Further

Mortgage rates had a pretty rough go about things last week. There was a significant spike in rates to begin the week and then things settled down more towards the end of the week. But the wild volatility is what we have been talking about for a very long time and it is what everyone should be expecting for the weeks and months ahead. If you missed our previous conversations regarding the relationship of mortgage rates and the mortgage-backed security market to the 10 year yield, it is a great indicator of where we are going based on where we have been. Given the fact that the Federal Reserve is trying to fight inflation, restore price stability, and increase unemployment, the forecast is for more volatility not less.

This week will be no exception as we are coming off of the BRICS summit as well as the Federal Reserve’s Annual Jackson Hole symposium both of which had bombshell announcements. As for the BRICS summit they made even more progress last week by adding 6 new member countries to the group in their effort to advance a new basket of currency exchange separate from the US dollar. So what will happen to the dollar? Only time will tell, but as for now a new competitor is warming up in the bullpen.

As for the Federal Reserve, last week’s Jackson hole symposium really overshadowed a lot of last week’s economic data releases. In summary last week’s Jackson Hole symposium revealed that Jerome Powell and the Federal Reserve are still concerned about inflation and went as far to call inflation “too high” and warned that “We are prepared to raise rates further” This should come as NO SURPRISE to those of you paying attention. You would have to literally ignore what they’ve been telling us to think there’s a Pivot on the horizon, let alone rate cuts by the end of year. Aside from a catastrophe of some sort that mandates a knee jerk course correction…it’s not gonna happen people!

While acknowledging that progress has been made, the central bank leader said inflation is still above where policymakers feel comfortable. The speech resembled remarks Powell made last year at Jackson Hole, during which he warned that “some pain” was likely as the Fed continues its efforts to pull runaway inflation back down to its 2% goal. A strong economy and decelerating inflation also give the Fed room to “proceed carefully” at upcoming meetings. All of which is short code for we have more rate hikes in the tank if things don’t start to get better for us. Be forewarned and ready for the September meeting, it will be watched very intently by the markets.

So with that, let’s take a quick look at what’s coming up in the markets this week.

Tuesday: We get the S&P Case-Shiller House Price Index (HPI) which began this year in the positive, but then turned negative starting May 2023…and to this day remains in the negative with yet again another month of negative reading expected this week. If it does come in negative it will mark the 4th month in a row. Not to be outdone, Consumer confidence reading and JOLTS job openings also come out.

Wednesday:  We get ADP non-farm payroll employment change, preliminary GDP and pending home sales. This set of releases is important leading into September because the Fed had previously told us that they are closely watching inflationary and jobs related data in order to drive their decisions moving forward.

Thursday: Core PCE and Unemployment claims both some out, once again adding more data to the stack to help the Fed come to their conclusions about whether to Hike rates in September or pause.

Friday: Marks the beginning of the new month where we will see Average Hourly earnings month over month, non-farm employment change, unemployment rate, ISM Manufacturing PMI and ISM Manufacturing Prices.

This is yet again a jam packed week of data the Fed needs and WE NEED to gauge the pulse of what to expect leading up to the September Fed meeting.

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