Morning Report: Jerome Powell heads to the Hill

Vital Statistics:

S&P futures4,31814.2
Oil (WTI)110.136.63
10 year government bond yield 1.79%
30 year fixed rate mortgage 3.98%

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.”

26 Responses

  1. This could be interesting:

    “How a new Supreme Court case endangers the New Deal, the Great Society, and Obamacare

    The Court’s Republican supermajority will hear a case about the Commerce Clause. God help us.

    By Ian Millhiser
    Mar 2, 2022, 9:10am EST”


  2. I have no idea what to make of this:

    “Assassination plot against Zelensky foiled and unit sent to kill him ‘destroyed,’ Ukraine says

    By Timothy Bella
    Today at 8:42 a.m. EST

    A recent alleged assassination plot against Ukrainian President Volodymyr Zelensky was foiled over the weekend and the Chechen servicemen sent from Russia were “destroyed,” a Ukrainian security leader said Tuesday.

    Oleksiy Danilov, the secretary of Ukraine’s National Security and Defense Council, said during a broadcast marathon airing on Ukrainian TV channels that officials were recently tipped off that a unit of Kadyrovites, elite Chechen special forces, was on its way to kill Zelensky. After Ukrainian officials were informed by Russia’s Federal Security Service (FSB), the Chechen special forces were killed Saturday on the outskirts of Kyiv, Danilov said.

    “We are well aware of the special operation that was to take place directly by the Kadyrovites to eliminate our president. And I can say that we have received information from the FSB, who today do not want to take part in this bloody war,” Danilov said. “And thanks to this, the Kadyrov elite group was destroyed, which came here to eliminate our president.””


  3. Interesting re-read now:


  4. Taibbi does have a way with prose:

    “I’d been a Petersburg resident through much of Putin’s tenure in the Mayor’s office, having fallen in love with Leningrad and its people as an exchange student in 1989 and moved back after college, with dreams of a writer’s life. Having no interest in politics I barely knew Sobchak’s name, let alone Putin’s, until after leaving town to take my first job at the Moscow Times. Properly assessing my level of intellectual seriousness at the time, the paper first had me cover sports, then gave to me a nonspecific brief to cover anything odd that hit the news desk. If a teenager mailed his mother’s head in a cardboard box to a high school teacher, or a Russian tried to set the Guinness bottle-cap pyramid record, I got the assignment.”


  5. Cleanest election ever.

    Interesting article on the number of people in a state over 100 years old.

    There are only 66,000 people in Wisconsin over 85 years old.


    • Immediately followed, I assume, with concurring tweets by totally real conservatives saying: “Yeah! And Venezuela has satellite access to all the voting machine!” Etc. So then everybody in the media can go, “There they go again, talking about votes being stolen by Venezuela satellites and how the earth is flat. Obviously they are all crazy and there’s nothing to see here.”


  6. On a flight to San Diego. As bad as flying was before, it is worse. I swear the inflight announcements are 99% hectoring about masks, seatbelts, smoking, etc. etc.

    And as she walks down the aisle, pull up your mask, pull up your mask, sir please wake up and pull up your mask. Hopefully the braintrust in DC will wake up and ditch this final idiotic mandate


    • Brent:

      As bad as flying was before, it is worse.

      I have sworn off flying since I returned to the US. I have been all up and down the east coast in the last month…Connecticut, Boston, DC, Florida, Atlanta….and have not yet stepped inside a plane. I would rather drive for 12 hours than put myself through the degrading experience of getting on a plane for a 2 hour flight.

      I totally agree with you. Flying was horrible experience even prior to covid. Now it is unbearable.


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