Vital Statistics:
| Last | Change | |
| S&P futures | 2957.5 | 24.1 |
| Oil (WTI) | 55.54 | 1.78 |
| 10 year government bond yield | 2.01% | |
| 30 year fixed rate mortgage | 4.10% |
Stocks are higher this morning as interest rates fall globally. Bonds and MBS are up.
The Fed maintained interest rates at current levels, but signaled the willingness to cut rates if necessary:
“The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”
The dot plot showed a 30 basis point decline in the fed funds expectations. You can see the plots side by side below. The central tendency for 2019 fell by 32 basis points to 2.17%
FWIW, the Fed upped their forecast for GDP, and cut their forecast for unemployment and inflation. Why that would be consistent with a potential rate cut is beyond me, but such is life in our era of Calvinball monetary policy. The decision was nearly unanimous, with only Bullard dissenting, preferring to see a 25 basis point cut. The Fed funds futures are pricing in 100% chance of a rate cut at the July meeting.
Bonds rallied on the announcement, although mortgage backed securities were slow to follow. We did see some reprices for the better late in the day, but nothing too dramatic. Expect mortgage rates to lag the move in bonds, as usual.
Initial Jobless Claims fell from 220,000 to 216,000 last week.
Home prices rose 3.6% YOY, the strongest acceleration in 7 months, according to Redfin. Interestingly, the only areas that dropped were the markets that rallied the most over the past few years: San Jose, New York, Los Angeles, where inventory is up smartly. Where was the fastest growth? Knoxville TN at 15%, Milwaukee WI at 15% and Camden NJ at 11%.
Judy Shelton is the latest potential nominee to the Fed. She is an advocate for much lower interest rates. She also favors ending the Fed’s policy of paying interest on excess reserves, which encourages banks to park money at the Fed versus lending it out.
Fannie and Fred are trying to do more to increase lending for manufactured homes.
The Daily Tearsheet 