All Things in Moderation

Vital Statistics:

Stocks are higher this morning as commodities rise and Western firms continue to impose “self-sanctions” against Russia. Bonds and MBS are down small.

Jerome Powell heads to the Hill today for his semiannual Humphrey-Hawkins testimony. Here are his prepared remarks. On inflation:

Inflation increased sharply last year and is now running well above our longer-run objective of 2 percent. Demand is strong, and bottlenecks and supply constraints are limiting how quickly production can respond. These supply disruptions have been larger and longer lasting than anticipated, exacerbated by waves of the virus, and price increases are now spreading to a broader range of goods and services.

On tapering and reducing the size of the balance sheet:

The process of removing policy accommodation in current circumstances will involve both increases in the target range of the federal funds rate and reduction in the size of the Federal Reserve’s balance sheet. As the FOMC noted in January, the federal funds rate is our primary means of adjusting the stance of monetary policy. Reducing our balance sheet will commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments.

Finally, on Ukraine:

The near-term effects on the U.S. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways. We will need to be nimble in responding to incoming data and the evolving outlook.

Conclusion, inflation is not transitory, we are raising rates in March, and the effects of the Ukraine invasion are impossible to model.

United Wholesale reported fourth quarter and full year numbers. Volumes were up on a YOY basis compared to the fourth quarter of 2020, which is surprising. Margins collapsed from 305 bp to 80, which is par for the course for what we are seeing with the mortgage banks. Like crosstown rival Rocket, they expect margins to hold steady here going into the first quarter.

The economy added 475,000 jobs in February, according to ADP. The January number was revised upward big time, from -300k to +500k. About a third of the job gains were in leisure / hospitality. “Hiring remains robust but capped by reduced labor supply post-pandemic. Last month large companies showed they are well-poised to compete with higher wages and benefit offerings, and posted the strongest reading since the early days of the pandemic recovery,” said Nela Richardson, chief economist, ADP. “Small companies lost ground as they continue to struggle to keep pace with the wages and benefits needed to attract a limited pool of qualified workers.”

Mortgage applications fell marginally last week as purchases fell 2% and refis rose 1%. We are back to 2019 levels in apps. “Mortgage rates last week reached multi-year highs, putting a damper on applications activity,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Although there was an increase in government refinance applications, higher rates continue to push potential refinance borrowers out of the market. Purchase activity remained weak, but the average loan size increased again, which indicates that home-price growth remains strong, and a greater share of the activity is occurring at the higher end of the market.”

Filed under: Economy | 26 Comments »