Morning Report: The Fed prepares the markets for a rate cut

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%

 

Jun Mar dot plot

 

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.

19 Responses

  1. Like

  2. For Scott,

    Like

  3. kosKidz are confused and angry over called-off Iran attack.

    https://m.dailykos.com/stories/1866290

    Like

  4. I don’t think anyone has mentioned it here yet, but this could be the greatest story of the year so far.

    https://www.wsj.com/articles/ohio-bakery-awarded-44-million-in-libel-case-against-oberlin-college-11560528172

    An Ohio bakery that sued Oberlin College for libel over accusations of racism has been awarded a total of $44 million in damages.

    The family behind Gibson’s Bakery sued the liberal arts institution and a school administrator after the Oberlin bakery was the focus of protests following the arrest of three black students involved in a November 2016 shoplifting incident. The three students later pleaded guilty to misdemeanor charges.

    A Lorain County jury on Thursday awarded Gibson’s Bakery $33.2 million in punitive damages. Last week, that same jury awarded the bakery, which was founded in Oberlin in 1905, $11 million in compensatory damages.

    Liked by 1 person

  5. Good read from Popehat:

    Apparently the “toothbrush & soap” litigation started during the Obama administration:

    “Over the years, lawyers acting on behalf of minors protected by the Flores Agreement have filed numerous motions asking judges to enforce it, claiming that the government has fallen short of its obligations. They filed the motion now at issue in 2016, during the Obama administration, arguing that ICE (Immigration and Customs Enforcement) and CBP (Customs and Border Protection) were violating the Flores Agreement by, among other things, confining minors in facilities that are not “safe and sanitary.””

    https://www.theatlantic.com/ideas/archive/2019/06/why-sarah-fabian-argued-against-giving-kids-toothbrushes/592366/

    Like

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