June 14, 2023 – Economic News

• June 14, 2023
• realestatelife
• Business & Markets, Fed, Interest Rates, Politics & Economy, Rates, Real Estate, Real Estate Finance, Recession, World News, Your Real Estate Life

MBS OVERVIEW

3:30 EST – Our benchmark FNMA MBS 6.00 July Coupon is down -21 BPS with 90 minutes left to trade.

The Talking Fed: The FOMC “paused” their path of raising their Fed Funds Rate and kept it at 5.25% but signaled future hikes ahead, making this a “hawkish pause”. You can read the official FOMC policy statement here. They also released their Summary of Economic Projections You can see them here. Here are some key takeaways from the Policy Statement and Projections.

• For 2023, the median Interest Rate is projected to rise to 5.6% which means at least one more rate hike this year, it was previously projected to be 5.1% so this is an increase over the prior projections.
• Of the 18 FOMC participants, nine are penciling in two more hikes, and three have written down even more hikes than that.
• None of the 18 FOMC participants projected any rate cuts this year.
• For 2024, the median Interest Rate is projected to drop (by the end of the year) to 4.6% but this is an increase from their last projections of 4.3%
• For 2025, the median Interest Rate is projected to drop (by the end of the year) to 3.4% but this is an increase from their last projections of 3.1%
• Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.
• Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.
• Magically, there were no dissenting votes.
• Even more magic, their projections show no recession in the cards.
• Fed Chair Powell said that they have not made a decision on what to do in July and that it will be a “live” meeting (despite what the dot plot chart says….the dot plot chart says just the opposite)

Taking it to the House: We saw a nice bounce in Weekly Mortgage Applications after several weeks of declines. Total Applications were up 7.2% with Purchases up 7.6% and Refinances up 6.0%

Inflation Nation: The May Headline Producer Price Index (PPI) showed a MOM contraction of -0.3% vs. est. of -0.1%. YOY, it was up 1.1% vs. est. of 1.5%. Core (ex food and energy) it was up 0.2% on a MOM basis which matched forecasts and up 2.8% on a YOY basis vs. est. of 2.9%.

On Deck for Tomorrow: Initial Weekly Jobless Claims, Retail Sales, Empire Manufacturing, Philly Fed Manufacturing, Import and Export Prices, Capacity Utilization and Industrial Production and the ECB Interest Rate Decision.

The Fed held pat, didn’t increase rates as widely thought. In the policy statement the Fed is increasing its FF rate from 5.00%-5.25% to 5.61%. There were numerous opinions, 4 members said one more increase, half of the FOMC said 2 more increases. The initial reaction to the statement and the projections (see below) sent the 10 year from 3.78% to 3.84%, MBS prices prior to the release +5 bps, 10 minutes later at 2:10 pm -36 bps. The stock indexes tumbled, down 377 on the DJIA at 2:15 am. I’m emphasizing the time because we can compare where the markets end from those initial reactions. The economic projections, GDP in 2023 increased to 1.0% from +0.4% at the March projections, core PCE inflation in March projected at 3.6% increased to 3.9% in the current projections. At 2:30 pm Powell began his press conference, the 10 at 3.81% -2 bps, MBS prices down 14 bps from 9:30 am, not unusual for volatility with the FOMC, at 3 pm the 10 year down 3 bps to 3.80%, MBS prices -6 bps unchanged from 9:30 am.

That the Fed held rates unchanged is no long-term blessing, banks are tightening credit for the less qualified scores, credit card rates increasing and not likely to reverse. Car loans almost doubled from their lows a year ago; the average annual percentage rate on a new-car loan for those with scores 780 and above is 5.18%, according to NerdWallet. The average APR on a new-car loan for those with scores between 601 and 660, however, is 8.86%. Consumers and investors should focus on what the Fed is saying now that there will be more increases coming as the year progresses. Always a moving target.

Tomorrow weekly jobless claims, May retail sales, May import and export prices, May industrial production.

One of the people I follow, Jeff Gundlach of DoubleLine Capital, commenting this afternoon that he believes the Fed is finished increasing rates even given the Fed’s projections. The Fed’s track record is awful, lets see how big money managers and investors make of today’s data and comments. Gundlach’s view, the economy is slowing, and the potential of a recession is increasing. Commodities declining led by crude, China’s economy declining, leading indicators slowing. Tomorrow May retail sales expected to decline 0.1% from +0.4%, ex autos +0.1% from +0.4%. I agree with Gundlach, the Fed is likely finished but don’t believe rates will decline much.

Technically, the 10 year note is holding its 200-day average, 3.84% has turned the 10 around six times six times since the end of May, the same has occurred today, the 10 high 3.84%, at 4:00 pm. The 2 year note, more sensitive to the Fed increased from 4.60% at its low to 4.69% unchanged. Notwithstanding that the Fed projections are for core inflation at 5.6% from 5.1% in the March projections traders continue to believe the end is near, possibly by Sept.