Morning Report: Fed Day

Posted on September 20, 2023 by Brent Nyitray

Vital Statistics:

Stocks are higher as we await the Fed decision at 2:00 pm. Bonds and MBS are up.

Fed-whisperer Nick Timaros of the WSJ discussed what to look for in the Fed decision today. While no increase is expected at this meeting, the big question will be the dot plot for this year and next. Timaros believes it is possible that the dot plot will still predict one more rate hike this year, however fewer members will lean that way.

It is easier for the Fed to signal one more rate hike and fail to deliver than it would be for the Fed to send the all-clear signal and then raise rates. The other big question will be how many rate cuts the dot plot signals for next year. The dot plot from June is below:

The June plot sees one more rate hike this year, and then about 100 basis points in cuts in 2024.

Mortgage Applications rose 5.4% last week as purchases 2% and refis increased 15%. “Mortgage applications increased last week, despite the 30-year fixed mortgage rate edging back up to 7.31 percent – its highest level in four weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications increased for conventional and FHA loans over the week but remained 26 percent lower than the same week a year ago, as homebuyers continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging. Refinance applications also increased last week but are still almost 30 percent lower than the same week last year.”

Separately, Joel Kan expects mortgage rates to fall into the 6% range by the end of the year and into the 5% range in 2024. I agree with him and I believe the driver is going to be a decline in interest rate volatility which will positively impact MBS spreads. Below is a chart of the Bank of America / ICE bond market volatility index (MOVE) and you can see it jumped in early 2022 which coincided with the Fed’s liftoff. Uncertainty over Fed policy is a driver of volatility, and volatility is probably the biggest driver of MBS prices as it drives convexity forecasts.

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Filed under: Economy |

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25 Responses

  1. Scottc's avatar
    Scottc, on September 20, 2023 at 9:20 am said:

    I just heard a great line: The Constitution is not perfect, but it is a lot better than what we have now.

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  2. Brent Nyitray's avatar
    Brent Nyitray, on September 20, 2023 at 9:50 am said:

    Great piece by Glen on Yoel Roth

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  4. jnc4p's avatar
    jnc4p, on September 21, 2023 at 1:10 pm said:

    Interesting read:

    “America’s New Politics of Nothing

    Ryan Zickgraf”

    https://compactmag.com/article/america-s-new-politics-of-nothing

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  5. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on September 21, 2023 at 8:25 pm said:

    “Look, everything’s on the table for me,” Paxton replied. “Now that I’ve been through this and I’ve seen how guys like John Cornyn have represented the state of Texas — and not represented us — I think it’s time somebody needs to step up and run against this guy that will do the job and do it the right way and represent us and worry about what’s going on at the border.”

    This is not an idle threat as Paxton is pretty popular and Cornyn is not.

    https://redstate.com/jeffc/2023/09/21/ken-paxton-hints-at-future-political-aspirations-after-surviving-impeachment-everythings-on-the-table-n2164139

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  7. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on September 21, 2023 at 9:01 pm said:

    If she handles this as well as she did illegal immigration then I’m excited for the results.

    https://www.politico.com/news/2023/09/21/kamala-harris-lead-office-gun-violence-prevention-00117497

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