Morning Report: Fed makes no changes

Vital Statistics:

S&P futures4,20629.8
Oil (WTI)64.991.17
10 year government bond yield 1.66%
30 year fixed rate mortgage 3.19%

Stocks are higher this morning as earnings continue to come in. Bonds and MBS are down.

The Fed left interest rates unchanged at its meeting yesterday. Bonds had zero reaction to the press release. The Fed is still concerned about COVID and its effect on the economy:

Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy will depend significantly on the course of the virus, including progress on vaccinations. The ongoing public health crisis continues to weigh on the economy, and risks to the economic outlook remain.

The statement stressed that the Fed wants to see inflation at 2% over the long-term and says inflation has been running “persistently below this goal.” In addition, note the “transitory” characterization about inflation in the statement. The runup in commodity prices is due to COVID supply chain disruptions and shortages, which should dissipate as the year goes on.

First quarter GDP grew at 6.4%, according to the BEA. This is the advance estimate and it will be revised twice. Personal consumption expenditures and government spending drove the increase. Investment fell, largely driven by inventory depletion.

Inflation rose to 3.5% in the first quarter compared to 1.5% in the fourth, so inflation is accelerating. Excluding food and energy, PCE inflation rose 2.3%. Supply chain bottlenecks are causing shortages. Again, inflation numbers for the next several months are going to look exaggerated due to the lockdowns a year ago.

Initial Jobless Claims were more or less unchanged last week at 553k.

Professional Real estate investors beware: the new tax plan by the Biden Administration looks to severely restrict the 1031 exchange, which means capital gains taxes will be due immediately after a property sale, even if you buy another property in the next six months. He also wants to double the capital gains rate as well, and increase inheritance taxes. I have to imagine the net result of gutting the 1031 exchange will be to shrink home inventory even more.

Freddie Mac released a statement on the FHFA’s new refi program for low-income borrowers. “Millions of homeowners have benefited from refinancing to reduce their monthly mortgage payment and build long-term wealth. Freddie Mac’s new Refi Possible mortgage creates more equitable opportunities by making it easier for homeowners in lower income brackets to refinance their mortgage. Refi Possible reaches many homeowners who can benefit from refinancing and provides flexibilities that incentivize our clients to serve these eligible borrowers moving forward. Our goal is to expand access to credit responsibly and make sure we are supporting sustainable homeownership.”


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: