Morning Report: Neel Kashkari warns of further rate hikes

Posted on May 8, 2024 by Brent Nyitray

Vital Statistics:

Stocks are lower this morning on no real news. Bonds and MBS are down.

Minneapolis Fed President Neel Kashkari thinks the current rate regime will last a while. He didn’t rule out further rate hikes, although he doesn’t consider that a base case. “The FOMC targets 12-month headline inflation of 2 percent. While we saw rapid disinflation in the second half of 2023, that progress appears to have stalled in the most recent quarter (see Figure 1). The question we now face is whether the disinflationary process is in fact still underway, merely taking longer than expected, or if inflation is instead settling to around a 3 percent level, suggesting that the FOMC has more work to do to achieve our dual mandate goals.”

He also suggested that policy might not be super-restrictive given the strength of the housing market. He does mention some exogenous factors such as underbuilding post-2008, along with heavy immigration has increased demand for housing. “Policy actions by the FOMC have driven 30-year mortgage rates from around 4.0 percent prior to the pandemic to around 7.5 percent today. Perhaps that level of mortgage rates is not as contractionary for residential investment as it would have been absent these unique factors which are driving housing demand higher. In other words, perhaps a neutral rate for the housing market is higher than before the pandemic.” Since housing is the main driver of inflation these days, inflation (and therefore tight monetary policy) might stick around a while longer.

In an interview, he did say the bar is high to consider additional rate hikes, and also said we may be at current levels a while: “My colleagues and I are of course very happy that the labor market has proven resilient, but, with inflation in the most recent quarter moving sideways, it raises questions about how restrictive policy really is.”

Bottom line: if housing is the driver of inflation, and the neutral rate may be higher, then additional rate hikes might be needed to cool the housing market. Unfortunately, it is a catch-22: The problem for housing is limited supply, and higher rates don’t encourage building. But if they cut rates to stimulate building, they might stimulate speculation instead.

FWIW, I think a lot of the hottest markets (especially in FL) were driven by Air BnB speculators, and the Air BnBust is in full bloom. We are seeing price cutting in a lot of the hottest markets.

If these properties were financed with non-QM mortgages using DSCR programs, we could start seeing DQs pile up there.

Mortgage applications rose 2.5% last week as purchases rose 2% and refis rose 5%. “Treasury rates and mortgage rates fell last week on the news of a slowing job market, with wage growth at the slowest pace since 2021, and the Federal Reserve’s announced plans to ease quantitative tightening in June and to maintain its view that another rate hike is unlikely. The conventional 30-year rate dropped 11 basis points, and the FHA rate fell 17 basis points to 6.92 percent, back below 7% for the first time in three weeks,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist. “Mortgage applications increased for the first time in three weeks, with refinances up 5 percent. Even with the increase, which included a 29 percent jump in VA refinances, refinance volume remains about 6 percent below last year’s already low levels.”

Filed under: Economy |

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31 Responses

  1. jnc4p's avatar
    jnc4p, on May 8, 2024 at 8:56 pm said:

    Interesting Taibbi take on the Steele report I hadn’t seen before:

    My kind of moment where I was concerned about the story came very early with the release of the Steele report. I had done a lot of stories about short sellers who were shorting stock, who had used the technique very similar to what went on with the Steele report in order to sort of move the tape on stock. You hire a private company to do a negative research report, you foist it into the hands of a regulatory agency, you tip off a reporter that it’s now in the hands of the FBI or the SEC. They do a report that the company’s under investigation. Then you cash in when the stock plunges.

    https://www.vox.com/2018/10/18/17992608/matt-taibbi-rolling-stone-fairway-substack-newsletter-donald-trump-steven-perlberg-media-podcast

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  2. Let the mutherfuker burn!'s avatar
    Let the mutherfuker burn!, on May 9, 2024 at 9:33 am said:

    Probably true but irrelevant. It will have zero effect.

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  4. ScottC's avatar
    ScottC, on May 10, 2024 at 7:41 am said:

    This is unbelievable, and yet on reflection, it explains so much:

    https://www.realclearpolitics.com/video/2024/05/03/biden_economic_advisor_jared_bernstein.html

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  5. jnc4p's avatar
    jnc4p, on May 10, 2024 at 10:01 am said:

    I don’t agree with this writer on almost anything, but I think she’s correct on the algorithm and the suppression of dissent:

    Empire Managers Explain Why This New Protest Movement Scares Them

    Caitlin Johnstone

    May 09, 2024

    The US secretary of state and a Bilderberg surveillance tech oligarch have both made some very interesting admissions about the burgeoning protest movement against the US-backed slaughter in Gaza and the problems it poses for the empire they help run.

    During a vitriolic rant about university demonstrators at the Ash Carter Exchange on Innovation and National Security on Tuesday, Palantir CEO Alex Karp came right out and said that if those on the side of the protesters win the debate on this issue, the west will lose the ability to wage wars.

    For those who don’t know, Palantir is a CIA-backed surveillance and data mining tech company with intimate ties to both the US intelligence cartel and to Israel, playing a crucial role in both the US empire’s sprawling surveillance network and Israeli atrocities against Palestinians. Karp is a billionaire who sits on the Steering Committee of the Bilderberg Group and regularly features at the World Economic Forum and other platforms of plutocratic empire management.

    https://www.caitlinjohnst.one/p/empire-managers-explain-why-this

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  6. jnc4p's avatar
    jnc4p, on May 10, 2024 at 11:36 am said:

    This should be entertaining:

    The DNC Is Preparing for the Worst in Chicago — Without the Help of the City’s Mayor

    As Democrats plan their convention, they’ll have to address the elephant in the room: How to mitigate the threat of disruptions and work with a rookie mayor who unabashedly sympathizes with the protesters.

    By Jonathan Martin

    05/10/2024 05:00 AM EDT

    https://www.politico.com/news/magazine/2024/05/10/rookie-mayor-chicago-dnc-00157208

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  8. jnc4p's avatar
    jnc4p, on May 12, 2024 at 7:07 pm said:

    Latest from the Washington Post – stop using hot water to combat climate change.

    https://www.washingtonpost.com/climate-solutions/2024/05/11/cold-water-laundry-shower-dishes/

    Interesting what’s considered “progress” these days.

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  9. jnc4p's avatar
    jnc4p, on May 13, 2024 at 1:45 pm said:

    Freddie DeBoer is on the same level as Matt Taibbi when it comes to snark:

    or The New Yorker, the flagship publication of Boerum Hill liberals who can’t decide if it’s time to take the BLM sign down from the window of their tasteful brownstones.

    https://freddiedeboer.substack.com/p/it-seems-like-the-reckoning-has-become

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    • Brent Nyitray's avatar
      Brent Nyitray, on May 13, 2024 at 3:47 pm said:

      He is right that the left is all about memory-holing 2020

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    • ScottC's avatar
      ScottC, on May 14, 2024 at 8:18 am said:

      jnc:

      Freddie DeBoer is on the same level as Matt Taibbi when it comes to snark:

      He makes some good points, but personally I kept finding myself thinking “That’s an interesting critique, but dude…you are a Marxist in the 21st century? Seriously?”

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      • jnc4p's avatar
        jnc4p, on May 14, 2024 at 4:46 pm said:

        He’s not the only one. I find that the Marxists (real old school ones, not the new identity based idiots) sometimes have a good observation or critique of a current problem but their solutions are often lacking.

        In general, I find that you know things are really fucked when the Marxists start making sense.

        This is still one of the best things I’ve ever seen produced from an actual old school Marxist, even if you don’t agree 100% with it:

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      • jnc4p's avatar
        jnc4p, on May 14, 2024 at 5:12 pm said:

        Also he holds the left side accountable for their hypocrisy:

        https://freddiedeboer.substack.com/p/we-closed-the-institutions-that-housed

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      • Brent Nyitray's avatar
        Brent Nyitray, on May 14, 2024 at 7:21 pm said:

        I think there are a lot of people on the left who think AI and automation will mean that tech can do all the work, and people will be able to lead a life of leisure. They want the government to confiscate the technology and distribute the fruits of it.

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  10. jnc4p's avatar
    jnc4p, on May 13, 2024 at 2:55 pm said:

    Vox tries to one up the Washington Post when it comes to annoying progessivism:

    Speed limits are too darn high

    Drivers don’t need to go faster than 20 mph on most city streets.

    By Marin Cogan@marincogan

    May 13, 2024, 6:30am EDT

    https://www.vox.com/24153725/speed-limits-pedestrian-deaths-sammys-law-nyc

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    • Brent Nyitray's avatar
      Brent Nyitray, on May 13, 2024 at 3:57 pm said:

      Why is she setting such a low target? If we lowered the speed limit to 3 miles per hour, we could virtually eliminate pedestrian fatalities.

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      • jnc4p's avatar
        jnc4p, on May 14, 2024 at 4:47 pm said:

        “There’s a reason why cities and states are lowering the speed limit to 20 mph: It’s the speed at which most pedestrians who get hit by a car still have a good chance of survival. Above that, risk rises exponentially: A person hit by a vehicle going 30 miles per hour is 70 percent more likely to be killed than by a car going 25. The average risk of death reaches 50 percent when the driver is going 42 mph, and 90 percent at 58 mph — above that, a pedestrian’s chances of survival get very slim.”

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  11. jnc4p's avatar
    jnc4p, on May 13, 2024 at 5:52 pm said:

    And the NY Times makes three. This has the makings of a winning platform:

    Want to fix Social Security? The Well-Off Must Accept Smaller Checks.

    By Peter Coy

    Opinion Writer

    May 13, 2024, 3:00 p.m. ET

    https://www.nytimes.com/2024/05/13/opinion/social-security-retirement-benefits.html

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