January 30, 2023 – Economic News

• January 30, 2023
• realestatelife

MBS OVERVIEW

4:00 EST – Our benchmark FNMA MBS 6.00 February Coupon is down -4 BPS with 60 minutes left to trade.

Rosie the Riveter: The regional Dallas Fed Manufacturing Survey just had its 9th straight month of readings below zero, this time it contracted by -8.4 and is yet another data point that confirms that we are currently in a manufacturing recession.

On Deck for Tomorrow: Employment Cost Index, Case Shiller Home Price Index, FHFA Home Price Index, Chicago PMI, Consumer Confidence, FOMC starts two days of meetings.

No change in the rate markets from this morning, the 10 at 3.55% +4 bps, MBS prices -22 bps; both the same as at 9:30 am ET this morning and that is what we expect until Wednesday afternoon. No need to reprise what occurs when the FOMC meeting and Powell’s press conference is all about.

Two different outlooks dominate; markets believe that inflation is over (from the stand point at the long end inflation already hit its highs last Nov, mortgage rates also have seen their highs); the Fed will not only stop rate increases after the coming meeting. The Fed continues to refute that view and has been relentless trying to get its point accepted. Jerome Powell and Wall Street are headed for another face-off this week as the Federal Reserve seeks to slow its inflation-fighting campaign without signaling a readiness to stop. Nobel laureate Paul Krugman said he’s concerned investors have put inflation risk in the rear-view mirror too soon, and that easing financial conditions could spark it again. “I’m a little worried that the markets may be getting ahead of themselves,” Krugman said Monday on Bloomberg Television’s “Balance of Power” with David Westin. “The markets are pricing in that inflation is over. That could be a self-denying prophecy.”

We doubt the Fed will buckle, that decision was made in the late 70s, the Fed stopped to soon. The result inflation, already high, took off like a rocket pushing the FF rate to double digits, by the early 80s mortgage rates climbed to 15%. Jerome Powell has remined about that it was a colossal mistake; Paul Volker took the reins and rapidly increased FF rates; he killed the beast. The result though wasn’t good; recession took over, when reviewing the path, it became clear that the Fed missed the easier opportunity to cool inflation eventually leading to economic weakness; in the mid-80s in one day, the DJIA lost half its value. The Fed isn’t going to go down that path even with investors and Wall Street trying to change the narrative.

Tomorrow Q4 employment cost index, Nov Case/Shiller home price index, both old news. Jan Chicago purchasing mgrs. index expected at 45.1 from 44.9. Jan consumer confidence index expected at 109.0 from 108.3 in Dec. Any reaction to the two current data points won’t be much if at all.