All Things in Moderation

Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are down small.

No economic data today, and this week should be relatively data-light, with retail sales on Friday the only potential market-moving number. No Fed-speak as we are in the quiet period ahead of next week’s meeting.

Jerome Powell vowed to act “as appropriate” to maintain the current US expansion, which was largely taken as an admission the Fed will cut rates another quarter point at next week’s meeting. The Fed funds futures are pricing this in as a certainty, although there is disagreement within the Fed over whether it is necessary to cut rates given the strong consumer spending. He also threw cold water on political considerations affecting monetary policy. “Political factors play absolutely no role in our process, and my colleagues and I would not tolerate any attempt to include them in our decision-making or our discussions,” he said. “We are going to act as appropriate to sustain the expansion.” This was presumably in response to comments from ex-NY Fed president William Dudley to  “consider how their decisions will affect the political outcome in 2020.”

Interesting data point: Compass Point Analytics upped their price target for Fannie Mae stock to $7.75. which is almost 3x the current trading price of $2.71. Fannie Mae stock got hit last week on disappointment with the lack of specifics in the government’s housing reform plan.

Despite the disappointment from Fannie Mae stockholders and pref holders, the housing industry generally likes what the saw in the plan. “The reports recognize the need to better coordinate the roles of FHA and the GSEs,” Mortgage Bankers Association CEO Robert Broeksmit said. “Such coordination must preserve affordable financing options for a wide range of borrowers and reflect the vital role FHA plays in the larger housing finance system.” Talks about getting rid of the GSEs altogether seem to be over: “Both in the Obama administration and during periods of bipartisan negotiations the focus was on whiteboarding a totally new system,” said David M. Dworkin, who was a senior adviser in the Treasury Department on housing finance during the Obama and Trump administrations. “It is too hard. The current system is too embedded and the unintended consequences are too unpredictable.” The GSE affordable housing goals would also go away, to be replaced by a fee paid to HUD, who would then distribute the funds themselves. This is likely to be a non-starter with Democrats.

Mortgage interest deductions fell 62% last year as tax reform encouraged most people to take the standard deduction instead of itemizing.

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