Every year, the Federal Reserve (aka “the Fed”) gathers in Jackson Hole, WY with a bevy of other central bankers and academics to discuss and comment on monetary policy in a setting that’s slightly less formal than normal.  Despite the scenic backdrop, Jackson Hole speeches by the Fed Chair have a somewhat reliable history of relevance to financial markets–especially those that dictate interest rate movement. In this year’s case, the symposium was almost perfectly timed to give Chair Powell an opportunity to append his last major appearance in the press conference that followed the Fed meeting just over 3 weeks ago. Rates liked what he had to say back then as well, but in today’s speech, he said it a bit more forcefully. In not so many words, Powell made it clear that the default game plan is to cut rates at the September meeting just under 4 weeks from now.  In fact, as far as financial markets are concerned, the only uncertainty is whether the rate cut will be the minimum 0.25% or double that amount.  To be fair and clear, that’s about where the market ended up after the last speech, but that was followed by several big ticket market movers that temporarily convinced traders the Fed would be cutting by AT LEAST 0.50% a few short days later. Over the 2 weeks that followed, several economic reports forced a rethink of those assumptions, thus putting Powell in a position to put a ceiling on near term rate expectations (rather than comment on how quickly rates might move lower).  His speech certainly delivered said ceiling and also stayed clear of signaling any low rate exuberance. 

Closing Near Week’s Best Levels

If Friday was going to offer any example of scheduled events causing movement in the bond market, it fell to Powell’s Jackson Hole appearance to do the heavy lifting.  On that note, everything went off in a logical and fairly ideal way.  Powell forcefully confirmed the Fed policy shift despite stopping short of giving any sort of indication on the size of the forthcoming rate cut in September.  Bonds rallied instantly upon the release of the Powell’s prepared remarks and, in the absence of a Q&A session, that was it for the day.  MBS and Treasuries hit their best levels a few moments later and both are heading out the door at almost the exact same levels.

Market Movement Recap

10:03 AM Very flat overnight and into Powell speech, but gaining ground now.  MBS up an eighth and 10yr down 4.7bps at 3.806

01:00 PM Stronger after Powell and flat since then.  MBS up 5 ticks (.16) and 10yr down 3.4bps at 3.82

03:38 PM Near the best levels with MBS up 9 ticks (.28) and 10yr down 5.1bps at 3.803

It’s been a slow, uneventful week so far in terms of scheduled events.  Even though we certainly saw some elevated volume and volatility over the past two days, trading levels continued to grind mostly sideways in the lower middle portion of the range.  If we had to pick one wild card event for the week, it would be Powell’s Jackson Hole speech, which the market saw as a potential venue to confirm or comment on the certainty and pace of rate cuts in the upcoming Fed meeting.  While the speech itself made no comment on 25bp vs 50bp, Powell’s forcefully assumptive tone (i.e. “the time has come for policy to adjust.  The direction of travel is clear.”) is fueling the sharpest bond rally of the week so far.  
(full text here: https://www.federalreserve.gov/newsevents/speech/powell20240823a.htm )

Two Federal Reserve officials said they believe it’s appropriate for the U.S. central bank to begin lowering interest rates soon, and that the pace of subsequent cutting should be “gradual” and “methodical.”

The revisions also revise how the surplus is calculated to evaluate risk of the bonds used as part of the available asset portion of the capital requirements.

The lawsuit, which the plaintiff seeks class certification for, involves a transfer, overpayments during a grace period and allegations of improper late fees.

The industry would benefit from a measured approach that eventually builds in-house expertise without overreliance on vendors, experts said.

If efforts to make AI-based loan decision models less discriminatory degrade accuracy, that is problematic for the entire industry.

“Great news! I got the whole plane to myself! The large group going to the psychic’s convention all cancelled at the last minute.” (No, this didn’t happen my flight to Orlando last night. It was, however, delayed four times for 90 minutes.) But speaking of news, frankly, I don’t see how the senior management of lenders and vendors keep up on the news with everything that is going on. Tomorrow on TMC’s Friday Rundown is Shelley Leonard who will be discussing the rationale behind the credit report costs as well as the acceptance of the tri-merge/bi-merge move. Many LOs remember when the FTC banned certain noncompete agreements. Well, fuhgeddaboudit. A ruling by US District Judge Ada Brown has halted the Federal Trade Commission’s ban on noncompete agreements, citing the agency’s lack of statutory authority. The ban was intended to promote competition and prevent wage suppression. My guess is that an appeal is in the works. (Today’s podcast is found here and this week’s is sponsored by Candor. Candor’s authentic Expert System AI has powered more than 2 million flawless, hands off underwrites. Every credit risk decision Candor makes is backed by a Warranty, eliminating repurchase worries. Hear an interview with Steve Richman on public speaking trials and tribulations, the unpredictability of entrepreneurship, and what is important to originators now, based on his travels around the nation.) Lender and Broker Software and Services Revolution Mortgage cuts verification costs from 8 to 3 basis points. This is efficient operations, says Femi Ayi, Revolution Mortgage. Save up to $20K/month and reduce costs by 80% with Truv. See Truv in action.

Existing Homes (the jargon word for a home that has already been owned and occupied) represent a much larger piece of the home sales pie compared to new homes, but the series has  been flagging at historically low levels. When rates dropped at the end of 2023, existing sales perked up a bit, but had been moving back toward the long term lows recently. As of the last report, the annualized pace of sales had fallen from just under 4.4m to 3.9m–very close to October 2023’s 3.85m–the lowest reading in more than a decade. With today’s update, we’re suddenly back in business!  OK, that’s an exaggeration, but we’re at least suddenly surviving for one more month without sliding to deeper depths. The official annualized tally for July was 3.95m which was a hair higher than the 3.93m forecast. Other highlights:
Inventory up 0.8% m/m and up 19.8% y/y
Median price: $422,600, up 4.2% y/y
Average time on market: 24 days, up from 22 days in June
First time buyers accounted for 29% of sales, same as last month
Cash sales accounted for 27%, down from 28% last month, but up from 26% last year
Investors accounted for 13%, down sharply from 16% last month and last year
Regional sales breakdown:
Northeast, up 4.3% from June and up 2.1% annually
Midwest unchanged from June and down 5.2% annually
South up 1.1% from June and down 3.8% annually
West up 1.4% from June and also up 1.4% annually