Stocks are higher this morning after Trump signed the Iran deal. Bonds and MBS are up.
As expected, the Fed maintained interest rates at current levels. The statement was much less verbose than a Powell statement. The meat of it was simply two sentences: “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce, and the unemployment rate has changed little. Inflation remains elevated relative to the Committee’s 2 percent goal, in part reflecting supply shocks that have driven price increases in certain sectors, including energy. The Committee will deliver price stability.” The vote was 12-0.
The FOMC revised upward their estimates for inflation with the headline number rising from 2.7% to 3.6% while the core rate was bumped up to 3.3% from 2.7%. Unemployment was revised down a touch as was GDP growth. The dot plot (who’s days are probably numbered) shows half the committee wants higher rates. Note Kevin Warsh did not submit a forecast for the dot plot, which is a signal that he plans to discontinue it.
At the press conference, Kevin Warsh announced the creation of five different task forces surrounding data sources, communication, inflation targeting, productivity and jobs.
The 10 year bond yield rose 5 basis points while the 2-year did increased 16 basis points. The Fed Funds futures moved even more hawkish, with the markets now predicting a 88% chance for rate hikes by the end of the year.
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Retail sales rose 0.9% MOM and 6.9% YOY in May according to the Census Bureau.
Pending home sales rose 3.8% in May, according to NAR. “A late spring buyer rush—even with mortgage rates not budging—is an indication of pent-up housing demand and consumers’ acceptance of above-6% mortgage rates as the new normal,” said NAR Chief Economist Dr. Lawrence Yun. “The inventory-constrained Northeast region, which has seen faster home price growth but slower home sales for several months, is now showing more buyer contract signings. More supply is needed to help moderate home price growth.”
“Going forward, falling oil prices will help lower mortgage rates,” Yun said. “But declines will be modest given sizable borrowing by the federal government and strong AI investment spending by tech companies.”
The Northeast and the Midwest saw the biggest increases in activity, while growth in the West and South was muted.
