Trump’s new economic game plan for the Fed and the economy

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Trump’s plan for the next Fed chair and how this selection could impact rates.  Related to this episode:  ⁠The battle over rates: Trump vs. Fed Chair Jerome Powell⁠ https://www.housingwire.com/articles/the-battle-over-rates-trump-vs-fed-chair-jerome-powell/ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠More info about HousingWire⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://lnk.bio/housingwire  To learn more about Trust & Will, click ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠here.⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://trustandwill.com/  The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to editor in chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate.

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Modashami to talk about some wild moves

00:11at the Fed and what happens next on mortgage rates. First, I want to say thank you to our

00:16sponsor, Trust & Will, for making this episode possible. Logan, welcome back to the podcast.

00:21Wow. Just before we get on to this podcast, there's no more Jobs Friday for the rest of the year.

00:32October has been totally canceled. We knew that. We just talked about that a few podcasts ago,

00:36that they're never going to bring that report out for obvious reasons. But the November report is

00:42now coming December 16th, which means that we're not going to have any BLS Jobs Friday. There's

00:49going to be other data lines we can use or the Federal Reserve can use, but that's it. But the

00:56end of the year, the next Jobs Friday will be in 2026. So I made an AI video of myself dressed as a

01:05knight with an angry mob behind me about to storm the castle to get the October and November jobs

01:10report soon. You're like, give me that data. Okay, what do you take away from the fact that they're

01:15pushing it beyond the December Fed meeting? So there's a lot of talk about maybe Trump is not

01:26going to pick any of the Fed people to do this. And my observation is Trump and the White House

01:35is probably furious at Powell for being very hawkish after the Fed presser. But then all these Fed

01:44presidents were coming out and saying, no rate cuts, no rate cuts, no rate cuts. And I mean, my pick would

01:51be Christopher Waller because I know what he's doing. But I'm starting to get a sense that President

01:58Trump just doesn't trust anyone at the Fed anymore. They've been constantly talking about this for the

02:05last 48 to 72 hours. And I might have to put Kevin Hassett now as the next Fed chair, because Trump

02:14knows he'll do what he says. And he just doesn't want to deal with anyone that might not have positive

02:22forward guidance or anything in that regard. Even though Christopher Waller was the real first Fed

02:30president that was labor over inflation, that might not be good enough. So I'm getting a sense that

02:35that's going to be maybe the pick now. Kevin Hassett, who is the head of the White House Economic Council,

02:41who is a yes man all the time, will be Trump's pick. And he doesn't have to worry about the Fed

02:49kind of getting involved with their own kind of languages as a Fed chair.

02:54Okay. So what does that mean for mortgage rates? And is there any downside risk? Is there any risk

03:00that the markets freak out? Do you think he can get mortgage rates materially lower if he does that?

03:06I don't believe anything could get materially lower until the labor market breaks. But I think

03:11Trump wants mortgage rates down so much that he's really done something that I never thought a sitting

03:19president would do. Authentically, literally put in his own people. And you have to think about it.

03:25You know, why are mortgage rates near 6%? It's because the labor market was deteriorating faster than

03:32what the Fed members were doing. So in that light, the Fed is old and slow. They've been this the whole

03:39year, but then they went a little bit too hawkish, I think, for Trump's language. So imagine if

03:47Kevin Hassett was the Fed chairman in the last, he would have had a different forward guidance

03:54and the 10-year yield would be a little bit lower right now and mortgage rates would be a little

03:58bit lower. So if you want to think about it on an apples to apples basis, that's how you should

04:04look at it. Not like mortgage rates are going to go to 5% or QE is happening or anything. But the

04:10forward guidance by Powell and the Fed presidents, I believe, really pissed people off in the White

04:16House. And they kept on talking about it time and time again. So it would be better for everyone in

04:22the mortgage and housing industry if Jerome Powell was gone and they had Kevin Hassett just for the

04:29sense that the forward guidance would have been a little bit more dovish than what he said. That's

04:34kind of maybe the short-term way of looking at it. But there's a lot going on, Sarah, out here.

04:42And it has to do with general economics as well.

04:46Okay. So just to be clear, you don't think anybody, no matter who he picks, is going to be

04:51able to cut rates down to where Trump would really like them?

04:55No.

04:56Okay.

04:57Because it's a committee. He doesn't have all the members. He'd have to put the right amount of

05:03people. He doesn't have that right now. So that's not going to happen. It's done by a committee.

05:08I don't believe the Federal Reserve members themselves would do that. Even Stephen Meyer,

05:14who is his own pick out here that brought him into the Fed governor, he's not one of these

05:20bring rates down to one, one and a quarter percent that Trump wanted to talk about. So

05:24that to me is almost like an illogical conversation to have because you're asking for the Fed funds rate

05:32to be at emergency levels in a very short amount of time. They don't even operate that way unless

05:38something like COVID happened, where COVID was an exogenistic shock. Then you got rates down. So

05:45getting down to one and a quarter, like Trump says, no, that's not in the works.

05:51That seems like it would shock the whole system anyway.

05:54I, I, I'm not a big believer of this big shock theory that a lot of people say that, oh, look at

06:00the bond market's going to teach the bond market's at four, four, 10 right now. And Trump's trying to

06:05fire Lisa Cook. He put his own Fed member in there and he's basically bullying the Fed every day. The

06:1110 year yield is basically where it kind of should be with Fed policy. So I'm not a big believer that, but

06:16what Trump was talking about, one, one and a quarter Fed funds rate. And you don't, you don't, we don't

06:21operate that way unless there's an emergency. And there's nobody out there that's part of the Fed

06:26that's even talking about that, not even Stephen Meyron, who is his own person.

06:29So it, you know, with the jobs numbers, it's always confounding a little bit because it's like,

06:35if they're good reports, why doesn't he want to release it? If it's bad reports, why doesn't he

06:39want to release it so that we get lower rates? Like, you know, why do you think that that is not

06:44something the way he thinks about this? I encourage everyone to listen to our podcast on why we were not

06:49going to get the October reports and the BLS said that's not going to happen. There is a lot going

06:53on with his economic policy right now with midterms coming up and there's a lot of stuff being thrown

06:58out. I don't believe having a, if Goldman Sachs is correct and it's a negative October report,

07:05I don't think at this period in time when he's about to get something from the Supreme Court on

07:10his tariffs that they can take this kind of report at this stage. Speaking of all sorts of things out

07:16there, let's talk about, um, an idea that the president has had that seems to have some momentum,

07:21or at least they are taking steps and that is sending everyone a $2,000 check. Tell me what you think.

07:29I'm putting my hands on my face and just going, oh my, it's, you know, let, let me, let me explain

07:36it to you this, this way. Cause I, I had, I had this conversation with one of my stock trader friends

07:42for wall street. And I said, what did, what did Trump remember from COVID people were consuming

07:48goods. People were buying homes. Why? Because the fed funds rate was much lower. Mortgage rates were

07:52lower and people got checks and you know what they were, you know, happy to do so get it and spend money.

08:00I think this is, this is what's happened recently. The white house got some polling numbers and it

08:08wasn't good on inflation. And what, Sarah, what are you and I have talked about for many times on this

08:14podcast? No politician has ever survived any kind of inflation run. They all think they can, but it

08:20just doesn't work because their people are going to get angry and they vote against it. Well, it looks

08:24like the internal polling for him from his Republican side of voters. We're not happy with a few things.

08:31So what do you do like with the Trinity effect? You and I, November of 2024, we said, if Trump's going

08:39to try to do a trade war, he's going to need three things, lower energy prices, lower mortgage rates,

08:44and a lower dollar. He's got all those three things and people are still angry, you know? So, um,

08:51I, I think, I don't believe I'm, this is not my wheelhouse legally. I don't know logistically how

08:58he's going to be able to do that. The tariff revenues don't equate to the same amount of

09:03money and Congress shells that out. But if you give people money, the people that need it the most

09:10will be somewhat happy. Um, and, uh, that is, that is what he's trying to do here. I, it, it could be

09:16for a lot of talk. It's like the 50 year mortgage, a lot of talk. It's like the portable mortgage,

09:21you know? Uh, and I, and just another thing on the portable mortgage, we don't have it in our system

09:27currently. So I don't believe legally, you can just go back and change the contracts on some of

09:33these, uh, uh, loans and say, okay, now you're portable. That might be something that you might

09:38look at for the future, but it's not going to do anything. They're throwing up a lot of stuff here,

09:42right. To try to get people riled up because why two year political cycles here in America,

09:49it's very difficult to do something very aggressive because of the two year political cycle.

09:54And if the, if more Democrats get the house and Senate, it becomes more problematic to do some of

10:02his things. So this is all just the, what we talked about last year. It's hard to do

10:08major trade wars in a short amount of time where China could just sit there for a thousand years and

10:13go. Yeah. They really, that is a huge, um, you know, advantage they have. They don't,

10:18they don't have to worry about elections. Okay. So let's talk about what this means for housing.

10:23So the problem with throwing stimulus out there is you're going to raise inflation,

10:28right? Which means that's not good for rates. They've already estimated that maybe it's 0.1 to

10:340.2 for maybe a report. Uh, but what it does is it keeps consumption levels up. And in a tariff

10:44induced economy where goods pricing is rising, you just keep that a little bit firm. So what are we,

10:50we're, we're seeing, we're seeing Chipotle warn target warn, uh, uh, uh, other consumers. So

10:56some of the consumer sides that are maybe to the lower end are warning of missing estimates. Home

11:00Depot came out and revised all its guidance for 12 months. Cause they say people aren't doing

11:06remodeling projects. By the way, that's about policy there. In any case, I think they're just

11:11throwing whatever they can and seeing how this works because the midterms are coming up next year.

11:15So this won't, this won't be like one of these inflation just takes off like crazy, but you're

11:21in a very difficult spot. I think that's why there's, they're trying to take the tariffs off

11:25on food because we don't grow bananas here, right? So the bananas will cost more. There's stuff that we

11:31don't do here that it just, so it's a lot going on. Sarah, there's just a lot going on in a very short

11:37amount of time. And to me, it's more about political economic theory, which I need to talk about,

11:41but I have to because they they're throwing a lot of stuff to see what sticks with voters because

11:48the midterms coming up soon. So I'm sitting out here in housing land and I'm like, what does this

11:53mean for me? I want to know, like if the, if the $2,000 checks go out, obviously that's not helping

11:59someone buy a house. That's not, you know, I mean, that's not a material change for that, but if it raises

12:04rates, you know, I'm like, that's the opposite of what we need. So, but you're saying that it would only

12:09raise this tiny amount. People have made this argument already in the last 24 hours that if you

12:15give checks out, that'll be inflationary and rates will go up. But I'm always saying same thing, paper,

12:21rock, scissors, labor over inflation. The labor, we've had inflation tick up from 2% to 3%. The 10 year

12:29yield is down here. Why? Because the labor market matters more. So no matter what you hear out there

12:35in crazy political economic theory land, the labor data is more important for mortgage rates

12:42than anything out here. And then 65 to 75% of where the 10 year yield and mortgage rates can range it

12:48is still Fed policy. So the fact that we're not getting a jobs report until the next December 16th,

12:55I think, means the Fed's going to have to use its secondary data lines. They're going to have some

12:59reports. They can make a decision. Listen, I can make a decision out here and I have my cat as my only

13:04assistant. They have tons of people out there working for them. So they've got enough info, but

13:09the labor data is the only reason mortgage rates got down here and mortgage spreads got better.

13:15That's it. If it wasn't for that, we're talking 7% mortgage rates still today. None of the positive

13:21data lines that we've seen in the last 15, 16 weeks would have occurred. Like you said, it's very

13:26difficult for him to lower rates from here, no matter what he does. It's very difficult. It isn't

13:31difficult for Powell. He can do it. He just doesn't want to. And it's not difficult for the Fed

13:36Hawks. They can do it. It's not a problem. They could have gave forward guidance. It would have

13:41been a big deal. I could imagine they were just steaming after Powell's statement. And then they

13:47hear all these other Fed giving forward guidance and just getting the curve lower, just getting to

13:52neutral policy, right? This is a policy choice. They keep on telling everyone, we are modestly

13:58restrictive. If you keep telling people that that is a policy choice, that you can get down to neutral.

14:05But for me, since 2022, I said, I know it's going to look crazy, but they're going to be as

14:12restrictive as possible until the labor market breaks. They have flawlessly executed the 2022 plan.

14:19They can do it. They can get to neutral and just hang it through neutral because we're not talking

14:24about an accommodative stance. An accommodative stance means that rates are too restrictive.

14:30Jobs are being lost. We have to figure out what we can do to stimulate the economy. We're not

14:34breaking yet, but my God, it's the lowest job growth in the 21st century. And they're still saying

14:40modestly restrictive. We need to be modestly restrictive. That's my choice. He can do it.

14:47They choose, or they chose not to do it by their own principle.

14:52Okay. So in between here and that Fed meeting, what are the chances? I mean, what are you predicting

14:57for the Fed meeting? What is the overall, are people feeling like, no, we're not going to have

15:01a rate cut. We are going to have a rate cut. Boy, they have done a masterful job of pushing back on

15:06this. And they kept on telling people, we don't have enough data, even though they have enough data

15:10out here. So there's going to be a lot of reports that secondary reports, third reports, ADP reports

15:17showed another negative print. We're going to get another revenue report. There's going to be job

15:21openings. There's going to be enough data out there, but boy, where we were weeks ago, like 95%,

15:28it's really pushed back. And that the 10-year yield bouncing off of that very low level kind of makes

15:34sense. But again, forward guidance was the key to this. They could have just let it ride,

15:40but no. So, oh, so much is already priced in with the 10-year yield and mortgage rates already.

15:45So it just, we're, we're kind of stuck here. Now, the other side is that the labor data starts

15:51to get better. Like if we create 40,000 jobs, that's like, oh my God, look, we created 40,000.

15:57But that's the, that's the risk for mortgage rates that even 30 or 40,000 jobs, which would have

16:03been reprehensible a year ago. Right. Here it's like, oh, the Fed could say, hey, look, look,

16:09we're not losing jobs. Logan's right about us. We're not going to do anything to get to neutral

16:14policy or a commative until the thing breaks people. Come on. So this is just a lot. I think

16:22there's, there's, there's a lot going on. That's just not normal at this point. And I think a lot

16:27of this is just some pollings went really bad and they're just throwing stuff up in the air and seeing

16:31what, what, what gets popular because this is the reality of two-year political cycles out there.

16:38I mean, if Newt Gingrich is coming out there and saying, stop telling people that, you know,

16:44affordability is better. No, it isn't. So it's just, this is, this is the, this is the part of

16:50economics that I hate the most, but I have to talk about. Purchase application data came out today,

16:562% week-to-week decline, 26% year-over-year growth. It just means the last three weeks

17:02were 26%, 31% and 26% on a year-over-year. The low bar in purchase application data is over.

17:12We do not have their historic low bar. My joke is that that purchase application data last time

17:16it was this low, I had blonde hair. I was auditioning with Levi's commercials. No doubt

17:22was the best band. Gangster Paradise is, you know, number one song. So I'm going out in the future.

17:29Now we're going to have one more mild low comp, but everything's going to be kind of on par with

17:36how the weekly data goes. And we've always said that the week-to-week data really matters more.

17:41Our best home sales prints since late 2022, a lot of them did not have any positive year-over-year

17:46growth. Last year, it was a confusing thing because while the housing data was getting better,

17:51it was negative year-over-year. Then all of a sudden, we've got a couple hundred thousand more

17:54home sales people. Where does that come from? Purchase application data is a very, very tricky

17:58survey data. You and I have talked about this for five years because I've been following it for a long

18:02time and it could confuse everyone. Just realize that the week-to-week data has been a little bit

18:07more positive than what we see in any other period of time when mortgage rates get below 6.64.

18:13So we'll take it from there. This will be the last big year-over-year print. Any big prints that we

18:19get in the future, they're a lot more legit now because the low bar is gone.

18:24That's good news. Okay. Logan, thank you so much for being on. We will talk to you again soon.

18:28Pleasure.

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