Morning Report: Aggressive rate hikes should be done by early next year

Vital Statistics:

S&P futures3,704-4.00
Oil (WTI)87.501.98
10 year government bond yield 4.17%
30 year fixed rate mortgage 7.03%

Stocks are lower this morning as earnings continue to come in. Bonds and MBS are down.

St. Louis Fed President James Bullard said yesterday that he expects the Fed to end its “front-loading” of aggressive rate hikes by early next year. “In 2023 I think we’ll be closer to the point where we can run what I would call ordinary monetary policy,” he said. “Now you’re at the right level of the policy rate, you’re putting downward pressure on inflation, but you can adjust as the data come in in 2023. Not that there wouldn’t be further adjustments, but they would be more based on the data coming in as opposed to us trying to get off zero and up to some level that’s reasonable.”

Meanwhile, the Beige Book indicated that the economy is experiencing “slight to modest” growth, while prices (inflation) is showing “some degree of moderation.” The labor market appears to be loosening up, with wage increasing beginning to decline.

Speaking of the labor market, initial jobless claims remain quite low, falling to 214,000 last week.

Ally reported earnings yesterday. They are mainly an auto lender (they used to be known as GMAC), however they do have a mortgage origination arm. Their direct-to-consumer mortgage origination volume was $500 million, which was down 85% compared to a year ago. Refinance activity was down 98%.

The Conference Board Index of Leading Economic Indicators fell 0.4% in September, which was below the street expectation of 0.3%. “The US LEI fell again in September and its persistent downward trajectory in recent months suggests a recession is increasingly likely before yearend,” said Ataman Ozyildirim, Senior Director, Economics, at The Conference Board. “The six-month growth rate of the LEI fell deeper into negative territory in September, and weaknesses among the leading indicators were widespread. Amid high inflation, slowing labor markets, rising interest rates, and tighter credit conditions, The Conference Board forecasts real GDP growth will be 1.5 percent year-over-year in 2022, before slowing further in the first half of next year.”

Existing Home Sales fell 1.5% in September to a seasonally-adjusted average rate of 4.71 million. Year-over-year, sales are down a whopping 24%. The inventory of homes for sale declined as well, to 1.25 million units. “The housing sector continues to undergo an adjustment due to the continuous rise in interest rates, which eclipsed 6% for 30-year fixed mortgages in September and are now approaching 7%,” said NAR Chief Economist Lawrence Yun. “Expensive regions of the country are especially feeling the pinch and seeing larger declines in sales.”

The median home prices rose 8.5% YOY to $384,800. Days on market rose to 19, and 70% of properties sold within a month. The first time homebuyer accounted for 29% of sales, which is historically a low amount. Affordability constraints are almost certainly an issue, but low first time homebuyer percentages have been low for the past 15 years.

24 Responses

  1. Worth noting:

    ” Appeals court finds CFPB funding unconstitutional

    A three-judge panel of the 5th U.S. Circuit Court of Appeals ruled in a case brought by a payday lending group against the CFPB’s 2017 payday lending rule.”


  2. Good read:

    “‘A Category 2 or 3 Hurricane Headed Democrats’ Way’

    By Benjamin Hart”


  3. Good piece.


  4. Worth noting:

    “Documents detail plans to gut Twitter’s workforce
    Previously unreported details shed new light on Twitter’s motivations for selling the company — and Elon Musk’s plans to transform it

    By Elizabeth Dwoskin, Faiz Siddiqui, Gerrit De Vynck and Jeremy B. Merrill

    October 20, 2022 at 5:17 p.m. EDT

    Twitter’s workforce is likely to be hit with massive cuts in the coming months, no matter who owns the company, interviews and documents obtained by The Washington Post show, a change likely to have major impact on its ability to control harmful content and prevent data security crises.

    Musk told prospective investors in his deal to buy the company that he planned to get rid of nearly 75 percent of Twitter’s 7,500 workers, whittling the company down to a skeleton staff of just over 2,000.”


    • That is the perfect response.

      I remember when I was in the Navy, you would get Greenpeace dipshits who would try and handcuff themselves to the anchor when we were transiting in the channel. Usually between Seattle and Vancouver.

      I am on the bridge thinking if we lose steering (it does happen) I am dropping the hook and that has to be a bad way to go.


      • I would have thought that warning shots would have been fired if they got within a certain perimeter.

        Was this before the USS Cole?


  5. Hadn’t heard this but it seems par for the course.


    • After news outlets from the AP to Fox News, plus 50 state governments, certified Joe Biden’s victory…

      A good indication of both the ignorance and arrogance of the media. Election results are not certified by news outlets, and the idea that what news outlets say about the certification of an election carries an authority on par with (or, as the sentence construction implies, perhaps even greater than) state governments is absurd.


      • It’s their faith in the Cathedral that is the most amusing. Kilgore dances around the subject but fails to actually arrive at the conclusion that is the majority of people think that Federal politics, and Federal bureaucrats in particular, are irredeemably corrupt then maybe those same people don’t think a bunch of yahoo’s tearing it up a bit and putting the fear of God into these corrupts people and entities is all that bad a thing.

        Most people don’t fetishize Washington DC, government or politicians. They don’t view them as the End but the Means to an End. Kilgore can not seem to accept the difference.


        • My ongoing problem with January 6th is the fetishizing of it. If a bunch of rowdy assholes tore up a local mayor’s office they should get prosecuted according to the law, and done. If a bunch of rowdies come in and steal stuff from a Target they aren’t even prosecuted in a lot of places.

          But because these rioters disturbed the hallowed halls of our American royalty it must involve committee hearings and commemorative days and multiple television specials and endless moaning by the privileged classes in the media that democracy almost died because peasants and untouchables intruded in the ibtelligentsia’s sacred spaces.

          Make no mistake: those who trespassed, stole, and vandalized and definitely anyone who assaulted anybody should have suffered legal troubles commiserate with their crimes. But making the January 6th riots such a huge fucking deal while crimes that destroy family businesses and neighborhoods and kill people daily—-eh no big deal.

          It’s all an exercise in incredible narcissism and elitism. To me.


    • I love how it doesn’t even dawn on Kilgore that a lot of people view the democrats as authoritarian.


  6. Nailed it! The memo totally went out at Exxon.


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