Morning Report: Zero percent interest rates until 2022

Vital Statistics:

 

Last Change
S&P futures 3104 -84.1
Oil (WTI) 36.84 -2.39
10 year government bond yield 0.68%
30 year fixed rate mortgage 3.19%

 

Stocks are lower this morning after the Fed maintained interest rates at current levels. Bonds and MBS are up.

 

The Fed made no changes to interest rate policy  yesterday. The part that got everyone’s attention:

The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

The Fed will also maintain its purchases of Treasuries and MBS at the current pace. The economic projections include a 6.5% expected drop in GDP this year, an unemployment rate of 9.3%, and sub-1% inflation. The dot plot shows the Fed expects to keep rates at zero throughout 2020 and 2021.

dot plot

The gloomy outlook and the continued asset purchases are what seems to be driving the drop in stocks this morning and the strength in the bond markets. I guess we should expect mortgage rates to continue to ratchet lower as financial conditions thaw and more aggregators begin to get aggressive in pricing.

 

It seems like yesterday that the mortgage REITs were being thrown overboard. Bellwether Annaly just cut its dividend, which was to be expected, but it wasn’t that bad. In addition, it bought back $100 million worth of stock. With everyone out there deleveraging, I found it interesting that they chose to buy back stock as opposed to buying assets.

 

Meanwhile, initial jobless claims fell to 1.5 million and the producer price index fell 0.8% on a YOY basis.

 

The Trump Administration is considering another stimulus bill that would include more direct payments and further aid for small businesses. “We will have a significant amount of unemployment and we’re going to need to look at doing something there,” Mnuchin said. “I think we’re going to seriously look at whether we want to do more direct money to stimulate the economy, but I think this is all going to be about getting people back to work.”

 

Home Equity rose 6.5% in the first quarter, according to CoreLogic. The number of homes with negative equity fell by 16% to 1.8 million homes.

12 Responses

  1. Do you sense that Mnuchin is maintaining credibility within the business community? He seems to be able to bridge the political chasm while projecting a quiet influence.

    Or am I projecting wishful thinking there?

    Liked by 1 person

  2. The news that COPS was canceled reminded me of this:

    Liked by 1 person

  3. Like

    • Stalinst Larping

      Like

    • That is exactly right. The time is just amazingly condensed. Barely a day to get barricades and walls up, stop and frisk policing, warlords, accusations of sexual assault, and getting beat up by the new police for tagging a building (when tagging buildings was fine a few minutes before) for reasons of . . . wrongthink, or something.

      Lunacy. I would hate to own a business or any property in that Autonomous Zone. I’ll say that much.

      Like

      • It’s obvious what the solution is:

        “In 2020, the crime rate in the United States rises four hundred percent. The once great city of Seattle becomes the one maximum security prison for the entire country. A fifty-foot containment wall is erected along the Lake Washington and Elliot bay shoreline. All bridges and waterways are mined.

        The United States Police Force, like an army, is encamped around the island. There are no guards inside the prison, only prisoners and the worlds they have made. The rules are simple: once you go in, you don’t come out.”

        Like

  4. Interesting read:

    “JUMP

    Michael Solana”

    View at Medium.com

    Like

  5. Another hate crime hoax.

    I have a question: why are all these racial hate crime hoaxers black? Are the super progressive antifa folks too afraid that they people might believe they were real white racists if they got caught? Too big a risk to them to advance the struggle? Or insufficient upside, as they couldn’t directly claim victimhood?

    Like

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