Morning Report: Putting the Fed’s rate hikes into historical perspective.

Vital Statistics:

 LastChange
S&P futures3,940-5.0
Oil (WTI)85.25-1.74
10 year government bond yield 3.30%
30 year fixed rate mortgage 5.97%

Stocks are flattish this morning on no real news. Bonds and MBS are up small.

The markets are forming a consensus that the Fed will hike rates another 75 basis points at the September 20 – 21 FOMC meeting. The Fed funds futures see a 82% chance of 75 and a 18% chance of 50.

Jerome Powell’s speech at Jackson Hole was taken as hawkish, and so far the Fed has not pushed back on that interpretation, which is partially what has driven the change in sentiment.

If the Fed does indeed hike by 75 basis points, this will work out to be 300 basis points of rate hikes over a six month period, which is the most dramatic increase in recent history. The most comparable period is 1994 when Alan Greenspan hiked the Fed Funds rate from 3.25% to 6% over the course of a year. Old-timers might remember that this crashed the mortgage backed securities market. Orange County, CA went bankrupt after massive MBS investments went sour.

We are doing more this time over the course of six months. If the December futures are correct, we will see 375 basis points over the course of a year. In 1981, Paul Volcker raised the Fed Funds rate from 16% to 20% and caused the deepest recession since the Great Depression.

The point is that the Fed is acting almost as aggressively against inflation as it did in the early 1980s. This certainly explains the stock market’s reaction.

Home prices declined 0.3% in July, according to CoreLogic. They rose 15.8% YOY. “Following June’s surge in mortgage rates and the resulting dampening effect on housing demand, price growth is taking a decisive turn. And even though annual price growth remains in double digits, the month-over-month decline suggests further deceleration on the horizon. The higher cost of homeownership has clearly eroded affordability, as inflation-adjusted monthly mortgage expenses are now even higher than they were at their former peak in 2006.”

Mortgage Applications fell 0.8% last week as purchases and refis fell by about the same amount. “Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “With the 30-year fixed rate rising to the highest level since mid-June, application volumes for both purchase and refinance loans dropped. Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand. There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity.”

29 Responses

  1. I find this funny. The Dispatch is the Tom Hagen of conservative media.

    https://thedispatch.com/p/a-better-conservative-media-and-a?utm_source=substack&utm_medium=email

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    • The Dispatch could practically call itself The 70s Liberal “With 80% less sex and illegal drugs but all the moral superiority!”

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      • I guess in order to get the cushy jobs playing the Washington Generals Conservative punching bag on CNN, you have to throw the left a bone and try and talk conservatives out of disliking democrats.

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        • The “vote for Democrats to save conservatism” arguments are so weak. And clearly disingenuous. The argument of an honest NeverTrumper would be: vote for non-Trump Republicans. Vote for Republicans who don’t spend all their time talking about Trump, but rather talk about the issues.

          But that’s not the message ultimately. The message is “Republicans are wrong because Orange Man Bad! Vote for Democrats to save American conservatism. You stupid rubes! Wait did we say that last part out loud?”

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    • Eh, I mean, I wouldn’t object to seeing the goods, so to speak, but I still wouldn’t vote for her as president but I ain’t saying I wouldn’t look.

      But it’s not because she’s a woman. I’d vote for Margaret Thatcher for president in a heartbeat, and she a woman, not an American, and dead. I voted for Palin when McCain was running with her but I voted for Palin, not McCain.

      “You better vote for me for president or you hate women,” says entitled gaslighting narcissist thinking she can bully her way to the presidency.

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    • Christ on a cracker.

      “But at the same time, my experience here has given me a front-row seat to how deeply and unconsciously, as well as consciously, so many people in this country hate women. And they hate women of color. People ask me questions about the future. And realistically, I can’t even tell you if I’m going to be alive in September. And that weighs very heavily on me.”

      If she’s serious she is one entitled, delusional twit.

      She is safe and more likely to be alive in September of 2062 than 99% of the rest of the world’s population. How can she not see how privileged she is in every way?

      Good golly.

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  2. It takes a heart of stone not to laugh.

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  3. LOL, I know I said I was gone but you guys still intrigue me (except for the locker room talk…………….ick), but I did wonder what you guys thought about Barr’s recent statements re the Mar A Lago discoveries?

    Former Attorney General William Barr said he thinks the Department of Justice is “getting very close” to having the evidence to indict ex-President Donald Trump.

    But Barr said he hopes the DOJ will decline to do so, “because I don’t want to see him indicted as a former president.”

    Barr also criticized a judge’s order authorizing a special master to review documents that the FBI seized from Trump’s Florida home Mar-a-Lago.

    https://www.cnbc.com/2022/09/07/bill-barr-doj-close-to-having-evidence-to-indict-trump-but-shouldnt-do-it.html

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    • Locker room talk? Us? I am offended by this false and libelous accusation.

      That said, I think Barr is sincere and find his opinions largely valid. I would be more critical of this whole hyper-focus and apparently partisan obsession with Trump but I think he’s credible here and—unusual for Washington—operating in good faith.

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    • i paid zero attention to the 1/6 pageantry and i am paying zero attention to this.

      after the russian collusion hoax, i don’t believe anyone and i don’t care.

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      • A perfectly reasonable position. I am not paying any attention to it outside what you guys say here or what they talk about on the various political podcasts I listen to.

        Still would prefer Trump just go away but clearly Democrats desperately want to keep him front and center.

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    • Barr is one of the few people whose judgement I trust on this. I don’t think he will lie to protect Trump and I don’t think he will lie just to get Trump.

      I view the whole thing as parallel to Hillary Clinton’s E-mail scandal with classified info. In that case as well, the DoJ could have indicted but chose not to.

      As always, it’s hard to discern what the actual facts are here because the media loves to run the most salacious anonymously sourced rumors as fact (he’s selling nuclear secrets to the Russians!) regardless of how often they’ve not panned out previously.

      The publishing threshold for negative info about Trump continues to be “It could be true”.

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    • lmsinca, one insight that I do feel that I’ve gained from this whole episode is that I now better understand how Democrats could defend Bill & Hillary Clinton for all those years.

      I now get all the commentary about how they didn’t want to defend his or her specific actions, but felt that the Republican overreach in going after them was so over the top that they ended up pushing back against it to the benefit of the Clintons.

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      • jnc………..not sure I understand what you’re saying here. I was never a fan of the Clintons, either one, but I doubt their criminality, or whatever you decide to call it, came close to Trump’s. Just my opinion.

        IMO we had a president who was basically a mob boss and I kind of think, and hope, he might be facing the consequences.

        I’m not a Biden fan, but I think if you weigh the integrity scale between the two, Biden wins. We still have a two party system, much to my dismay as an Independent but I kind of think the D’s have the upper hand right now…………whether I agree with them or not!

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        • I’m pretty sure they were cut from the same cloth. They lack of a Clinton University might have been just disinterest in doing something so low brow. But as a casual observer they seem super-corrupt and abusive of their status and position so … giving Trump a run for his money, anyway.

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      • I would note that I agreed then and now on the Republican overreach. Impeaching Clinton over a select land deal (or the fact he lied about things in relation to that endless fishing expedition) was idiotic. That the Republicans won the house back for the first time in 40 years based on the Contract With America and pivoted to impeachment and blowjobs … was very frustrating. The Republicans were awful there.

        Glad they kept Clintoncare from becoming law but they did not focus enough on the shit that won them the house. I think that’s a lot of what’s going on with the Democrats and the left now, and if there is a red wave I’m concerned we will se the Republicans will not be any more productive.

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        • KW:

          Impeaching Clinton over a select land deal (or the fact he lied about things in relation to that endless fishing expedition) was idiotic.

          To be clear, the impeachment had nothing to do with the Whitewater deal, nor did it have anything to do with him lying about things in relation to the Starr investigation (which is what I assume you mean by the “endless fishing expedition”.)

          The perjury that Clinton was impeached over occurred during his deposition in Paula Jones’ lawsuit claiming sexual harassment, when he lied about his sexual relationship with Monica Lewinsky. He was also charged with obstruction of justice for trying to get Lewinsky to also commit perjury in that same lawsuit.

          All of this came out as part of the Starr report, but it was not Clinton’s actions in relation to the Starr investigation that were the subject of the impeachment.

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        • Meh. Your corrections are appreciated, but I remain irritated at Clinton’s impeachment. The only thing good about it is they at least only did it once. And I’m pretty sure the Republicans waited until after Clinton was in office to talk about impeaching him.

          But I suspect weee in a cycle of impeachments moving forward. And there’s really not another way for it to be. If Republicans don’t make a habit of it going forward, Democrats will cite that as evidence they are unimpeachable and impeach the next Republican president before he’s even sworn in.

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        • KW:

          Your corrections are appreciated, but I remain irritated at Clinton’s impeachment.

          I understand. I wasn’t trying to justify the impeachment. But it should be clear that it wasn’t done over mere process crimes created by the Starr investigation itself, the way the Scooter Libby or Mike Flynn indictments were. Clinton both committed perjury and suborned perjury from someone else in a lawsuit completely unrelated to the Starr investigation.

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        • Yes, you’re right. Still would have rather stuck to shrinking government and cutting taxes and making the case why Clinton’s politics were wrong and needed to be defeated on the lack of merit of their policy. But the Democrats are always worse when it comes to abusing process to achieve political aims. I guess I’d rather have the ‘94 impeachers than the 2016 impeachers but I’d rather have a slate of politicians that focused on constraining the power of the state.

          I also want a million dollars and a unicorn.

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  4. This story literally begs the question, can’t they both lose?

    https://redstate.com/joesquire/2022/09/07/nrsc-money-crisis-leaves-top-republicans-feuding-n624005

    God, Republican establishment are such worthless assholes!

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