Stocks are lower this morning on no real news. Bonds and MBS are down.
We have a pretty busy week ahead with Kevin Warsh’s first Humphrey-Hawkins testimony, the consumer price index, the producer price index, housing starts and retail sales. We will have plenty of Fed speakers as well. Earnings season kicks off Tuesday with all the big banks reporting.
The US and Iran exchanged fire over the weekend, which is pushing up bond yields and oil prices. The US hit staging areas Iran uses to attack commercial vessels transiting the Strait of Hormuz. Iran attacked facilities in Bahrain and Kuwait.
The Fed has established task forces to address monetary policy. These task forces will address communication, the Fed’s balance sheet, data, productivity & jobs, and inflation frameworks.
“The Federal Reserve’s commitment to price stability and maximum employment is unwavering. As is our resolve to pursue our mandate with rigor,” said Chairman Kevin Warsh. “The U.S. economy has changed significantly over the last generation, and never more so than right now. Each task force will carefully consider whether policymakers’ means and methods, analytical tools and policy approaches can be improved upon. I am honored that the best minds from a range of disciplines have agreed to work with us to sharpen our performance as an institution. The goal is straightforward: to ensure the Fed is best positioned to achieve our objectives in this consequential time.”
One of the big issues facing the Fed is that many of its tools are survey-based and response rates have been falling. The lower the response rate, the lower the signal-to-noise ratio.
Kevin Warsh’s Humphrey-Hawkins testimony will be interested especially concerning Fed guidance and spoon-feeding the markets. While Jerome Powell, Ben Bernanke and Janet Yellen were very forthcoming about policy intentions, I suspect Warsh might return to the days of Alan Greenspan, who’s inscrutable answers were his method of deflecting the questions away.
I suspect housing affordability will be a big issue and the Fed’s role in it. Unfortunately, we are at the closing the barn door after the horse has left stage on housing affordability, and there isn’t much the Fed can do about it. The lesson from 2021 is that making housing affordable via buying MBS and driving down rates just makes house prices higher and works against affordability.
The ROAD to Housing Act, which became law in June officially went into effect over the weekend. Trump did not sign the bill because he wanted Voter ID in place and there aren’t enough votes to pass it.
