Round and Round we go with the Fed – They are NOT in control

Mortgage rates were totally fine through Wednesday when Jerome Powell and the Fed gave their rate hike decision, policy statement, and press conference. Then on Thursday all hell broke loose in mortgage-backed securities and rates retested their most recent monthly highs…in just 1 single trading session. Thursday last week was uglier than the back side of a barn…c’mon did you think I was going to make a yo momma joke?!!? Friday was no easier, as the mortgage rate market ended the week significantly up as a reaction to the Fed’s admissions and approach, here’s what I mean.

At last Wednesday’s Fed press conference, Jerome Powell said the following:

  • The Federal Reserve is committed to bringing inflation back to its 2% goal.
  • The Fed has raised interest rates by 5.25 percentage points since March 2022.
  • The Fed is likely to raise rates again at the September meeting if the data known between now and then justifies that choice, but it is also possible that they will hold steady. This demonstrates broad uncertainty…and that scares markets.
  • The Fed is closely monitoring economic data to assess the need for further rate hikes.
  • And The Fed is aware that raising rates could slow economic growth, but they believe it is necessary to bring inflation under control, and is the better of the 2 options. That OTHER option being long term inflation becoming embedded in the economy and harming much larger segments of the overall economy than some select segments for a shorter period of time. Bottom line, pain for some vs. pain for most.

But in addition to the carefully crafted prepared statements Jerome Powell made, I want to share a few quotes that caught my attention AGAIN!

  • #1 The Fed is “acutely aware” that high inflation is causing hardship for many people. Good, Glad you know that…
  • #2 The Fed is “highly attentive to the risks” that high inflation poses to the economy. Let me interpret “We hope this works”.
  • #3 The Fed is “strongly committed” to returning inflation to its 2% goal. Or simply stated, we aren’t moving off target because we know that it would cause more questions than answers, so we need more time.
  • #4 The Fed is going to make decisions “meeting by meeting” to assess the need for further rate hikes. Which means they are not confident enough at this point to know if they are done or not, which also admits that they may not be in control of inflation at all…which is what I really think the story is here.
  • #5 The Fed believes that “moderate growth” and “supply and demand coming into better balance” are necessary to bring inflation down. True, but since they’re not directly in charge of that it’s a 2nd or even 3rd degree of influence that is taking a very long time to take effect. Even Jerome said it himself “The long-term impacts of inflation running too hot for too long are greater than that of the temporary labor struggles we might face in the interim. Failure to get inflation in control are greater social cost than unemployment.” Yikes.
  • And as a bonus: in case you missed this doozy, when asked if they would begin cutting rates when CORE PCE gets at or around 3.0% He responded firmly, “We’re comfortable cutting rates when we’re comfortable cutting rates…and I don’t think that is this year.” Ouch. That’s VERY telling.


In Summary, the next Fed meeting in September will get quite a lot of attention. I think the markets are going to really hone in even harder on data that comes out between now and then specifically because the Fed is relying on that data to make their next policy decisions. I couldn’t help but notice a level of discomfort Jerome Powell had during this most recent press conference last week. It’s like he knows more than he can admit at the moment, and they’re hoping the data can lay cover for them over the next few weeks leading up to his next spotlight moment. It may look like there are numerous bright spots emerging amidst the swaths of economic pressure points; however, the admissions that we’re going to be in this for possibly longer than anticipated will ultimately spell even tougher times for hundreds of thousands or even millions of Americans over the next 24 months. Housing and will be no exception, but that’s where tenure, decades of experience, and staying power shine. Where having experienced rough times as a team before, makes us Veterans during challenging times in mortgage and Real Estate. So in case you think it’s all doom and gloom, these are also the times where prepared people Win, and they win big in the end. Ask us questions, seek feedback, lean into what we’re teaching you, and decide what’s BEST for you and your family to take advantage of this quickly changing landscape.

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

Monday: Marks the end of the month, and no big news will be released.

Tuesday:  We will get ISM manufacturing Prices and more importantly the JOLTS jobs openings report. And this is important because of what Jerome Powell said last week…employment is still TOO hot for them to back off rate hikes.  Yes, there are less openings now than there have been in the past few months BUT the demand for labor is still very strong.

Wednesday: The all-important ADP non-farm employment change will be released which will is an early look at employment expansion or contraction.

Thursday: Unemployment claims comes out along with ISM services PMI

Friday: Is the big dog this week. Average Hourly earnings month over month, Non-farm employment change, and Unemployment rate all come out together in the morning

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