Morning Report: The Fed cuts rates

Vital Statistics:


Last Change
S&P futures 2983 0.5
Oil (WTI) 57.51 -1.04
10 year government bond yield 2.00%
30 year fixed rate mortgage 4.07%


Stocks are flat after the Fed cut interest rates 25 basis points. Bonds and MBS are up.


The Fed cut the Fed Funds rate by 25 basis points yesterday, which was in line with what the markets were expecting. Bonds sold off (rates higher) initially but eventually worked their way back to unchanged on the day and rates are lower this morning. The volatility in bonds did widen MBS spreads a little, which means that mortgage rates didn’t necessarily follow the 10 year yield lower.


The markets seemed to take the fact that Esther George and Eric Rosengren dissented in stride. Both voted against cutting rates. Jerome Powell’s press conference was a bit surreal given that his body language gave the impression he didn’t actually believe his “insurance cut for maintaining the recovery” narrative very much. If you watch the press conference, you’ll see him struggle with a question from Bloomberg’s Michael McKee regarding how cutting interest rates in an economy awash in capital will have any effect. Powell mentioned slowdowns in Europe and China several times, and that probably gave away the game.  This was a rate cut in response to global weakness, certainly not US economic numbers nor Trump’s jawboning. Since using monetary policy as a tool to help foreign economies is not in the Fed’s job description, he can’t come right out and say it.


You can’t help the feeling that global central banks have engineered a sovereign debt bubble globally and now have no idea what to do about it. Their exit strategy is to create inflation, which would send money out of bonds, but cutting rates is causing bonds to get more expensive, exacerbating the bubble. The result has been a situation that makes zero economic sense: why would anyone pay to lend money, let alone to a government with a debt to GDP ratio of 240% (Japan)? I guess it is one of those things that people will eventually wake up to en masse. In other words, “it won’t matter until it matters, and then it will be the only thing that matters.” But the #1 rule of bubbles is that they go on longer and go further than anyone expects.


The Fed funds futures moved marginally in response to the rate cut. The markets are now pricing in about an 85% chance of one more cut this year, and are handicapping a better than 50% chance of a cut in September.


fed funds futures


The Wall Street Journal is reporting that the FHA is going to announce a move to lower the limit for cash out refinances to 80 LTV from 85 LTV.  “The risk at 85% is more than what we think is appropriate to bear and more than what we think we should expose taxpayers to,” said Keith Becker, the FHA’s chief risk officer. This change will bring FHA loans in line with Fannie and Freddie which cap cash outs at 80%.


In another change, a HUD proposal has been circulated that would reverse an Obama-era standard for fair lending – the disparate impact standard – and replace it with a 5-step framework to demonstrate that discrimination occurred. In other words, it will put the burden of proof back on the regulator to prove the lender intended to discriminate. I don’t have the actual proposal, so there isn’t much to go on quite yet.


In other economic news today, initial jobless claims came in at 215k, construction spending fell 1.3% and the ISM Manufacturing index slipped to 51.2.



10 Responses

  1. The only winning move in the woke games is not to play.

    “Banana Republic is selling hijabs. Muslim shoppers wonder: Is it inclusion or appropriation?”


    • The whole concept of cultural appropriation is idiotic and nobody who advances it should ever be taken seriously. The great power of assimilative culture is to both take advantage of the good ideas and innovations of another culture while the benefit to that culture is the accommodations and products such “cultural appropriation” provides.

      I find it interesting that people who have no problem with the idea that everybody else should pay more in taxes (thus “appropriating” from the fruits of their labor and ingenuity) for the greater good of society have such a problem with people having their cultural ideas/designs/concepts/attitudes copied or adapted–something that is infinitely duplicable and freely shared with very little cost or loss to the originator (unlike, say, taxes).

      Also, “cultures” don’t collectively innovate, per se. There is generally one or a few innovators, then those who adopt and adapt to spread the cultural meme through the larger culture. There is apparently no problem with the larger culture appropriating the cultural innovation from the few who innovated it. But nobody wearing a hijab today invented the hijab, and likely very few of them have added to it or perfected it in any way. Yet they have no problem personally appropriating it.

      Bah. Our spoiled and entitled humanity.


  2. Trade war escalates


  3. OK, now I have to go see Once Upon a Time in Hollywood.

    “What’s really got the justice critics worked up, however, isn’t the violence or the nostalgia or the silencing of Sharon Tate. What’s rattling them more than they realize is that this movie is transgressive as hell. Only Tarantino would have the balls to make something like it, something that embraces values that have repeatedly been proved—proved!—to be dangerous, outdated, the thing that people don’t want anymore. Box-office poison. And only Tarantino could do it so skillfully that it’s not until you’re back in the car that you realize what he’s done: made a major motion picture in 2019 about a man with a code, a man who hews to the old values of the Western hero.”

    Liked by 1 person

  4. So, in the debate last night, they were attacking Obama?

    Goddamn, Trump is in their head.

    Liked by 1 person

Be kind, show respect, and all will be right with the world.

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: