Stocks are flattish this morning after the Fed maintained rates. Bonds and MBS are flat.
As expected, the Fed maintained the Fed Funds rate at its current level of 3.5 – 3.75%. The statement removed the “The Committee is attentive to the risks to both sides of its dual mandate and judges that downside risks to employment rose in recent months.” statement that was in the December statement. Miran and Waller dissented, preferring to cut rates by 25 basis points.
In the press conference Powell suggested he is in no hurry to cut rates: “We’re not trying to articulate a test for when to next cut…What we’re saying is we’re well positioned.” In other words, the labor market has to deteriorate or inflation has to move markedly closer to the 2% target before the Fed cuts again. Suffice it to say we have seen our last cut out of the Powell Fed.
The March Fed Fund futures still see the Fed standing pat, with only a 14% chance for a cut. The December futures still see 2 cuts as the most likely scenario.
It is interesting to see the Fed remove the reference to the downside risks to the labor market given that nothing much has changed from December. The consumer confidence report from earlier this week shows a substantial difference between consumers’ perception of the labor market and the actual numbers coming out of BLS.
I plotted consumer confidence versus the unemployment rate, and we are definitely seeing an breakdown of the inverse correlation between confidence and unemployment:
I’m not sure what is causing the breakdown, which is definitely a post-pandemic phenomenon.
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New Feature: Expanded Market Data with SOFR Swaps
You’ll notice our daily market data now includes SOFR swap rates, provided by Eris Innovations. These rates are derived from Eris SOFR Swap futures (native CME Group contracts), offering a transparent view of long-term rates.
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- Capital Efficiency: Swap futures require significantly less balance sheet than cash instruments.
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- Strategic Utility: Already widely used for hedging MSR portfolios, but they are also becoming the instrument of choice for hedging ARMs, non-QM, RTL, and key rate duration for Agency mortgage portfolios.
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Homebuyers are cancelling deals at the highest rate on record, according to research from Redfin. Roughly 40,000 contracts were cancelled in December, which is a record high. This works out to 16.3% of properties that went under contract. “High housing costs and rising inventory have made homebuyers more selective,” said Chen Zhao, head of economics research at Redfin. “Home sellers outnumber buyers by a record margin, meaning the buyers who are in the market have options and may walk away if they believe they can find a better or more affordable home.”
Atlanta and the Bay Area saw the biggest number of cancellations. “Buyers have options and aren’t shy about negotiating to find the right home,” said Alison Williams, a Redfin Premier real estate agent in Sacramento, CA. “Cost is a major barrier right now, so if the seller hasn’t fixed maintenance issues or the home is priced too high, the buyer may back out.”
