- 2 days ago
On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about Fed week and how the Fed meeting could impact mortgage rates.
Related to this episode:
https://www.housingwire.com/mortgage-rates/
Related to this episode:
https://www.housingwire.com/mortgage-rates/
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00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about Fed
00:11Week and how the Fed meeting could impact mortgage rates. Before we jump in, I want to
00:16thank our sponsor, Trust & Will, for making this episode possible. Logan, welcome back to the
00:21podcast. It is wonderful to be here, Sarah, in very freezing Indiana again. I'm going back to
00:27Orange County where I belong. But this is why you look like you're like, this is my Game of the
00:34Thrones outfit. This is that, you know, when, when I went to Japan many years ago, they kept people
00:39kept on taking pictures with me because I had something like this on and they go, Jon Snow,
00:44Jon Snow. I'm like, no. I was on the chart daddy then. So it is what it is. It is what it is.
00:52Okay. On this note, we just have to one more time check in on your Stranger Things viral and I mean
00:59mega viral post that you did where people thought you were part of the Stranger Things crew. Where
01:05did you end up? I think I'm at 11 million now, you know, so I probably I broke into Brazil now. So
01:14it's always fun, like looking to see where this country is and everything and India, Brazil, Mexico,
01:20Japan, US. But that's been an interesting experience. That is crazy. Okay, well, let's
01:27talk. We have some important things to talk about. Fed week, Fed week. Oh my gosh. Okay. What's the
01:32preview here? So just like the last time with the Federal Reserve, mortgage rates near 6%. Fed is
01:42nervous, right? We've documented this since the early part of 2023 because of their words. I think
01:49Neil Kashkari when he said that, you know, how are you supposed to balance an economy if the housing
01:55market shows a little bit of life. And it goes into the, you know, I know people think I'm joking,
02:01but if more people have sex, they have kids, they buy single family homes. You know, if we start
02:07building homes again, these things make it difficult for the Fed to kind of suppress economic
02:13activity. So this is the one sector that they control. So usually when we get about here,
02:18they get hawkish. Powell got very hawkish. It probably costs Christopher Waller, the Fed chair
02:24job. We've had a lot of hawkish Fed presidents who are kind of wrong about the labor market this year.
02:30So you're going to get a cut, but I think they're going to sound very, very hawkish. Pretty much maybe
02:39even saying, hey, listen, unless things get worse, you know, we're done. But they kind of said that
02:44last time. So a rate cut, but probably maybe the most hawkish Jerome Powell has been in recent history,
02:54because most likely this is his last Fed meeting before they announce Kevin Hassett as the next
03:02Fed chair. And then, you know, the verbiage is all going to change after that when Powell leaves the
03:08Fed chairman job. I just think like, if you look at the data, we went over it in our last podcast,
03:14like the jobs data is not great. Is it breaking? No, but it's not great.
03:18I think one, you know, one of the things that, you know, for example, the challenger job cut
03:23they come out, you know, weekly with announced layoffs. And one of the things I probably shouldn't
03:41have done this maybe earlier in my career that it like one and a half to 2 million people lose
03:46their jobs every single month. So there is the natural flow of discharging this. And then there
03:52is the, well, okay, the economy slowing down. Growth is slowing down. Private investment,
04:00domestic investment is slowed down because growth is slowing down. There's no more hirings. And now
04:04companies have to lay off because margins are being hit. These are two different things. And
04:10the labor market is getting softer for some times. But as we've always said, they need to see the labor
04:16market break, right? They need to see jobless claims break. They need to see growth slow down. They need
04:21to see industrial production. They need to see a retail store. They need to see all these things
04:26before they want to make that next step forward. So I do expect a very hawkish Jerome Powell and for
04:35another wave of very hawkish Fed presidents who most likely will be targeted by President Trump next year.
04:43Yeah, we talked about that in our last one that like now they're being targeted. Let's talk about this
04:47week. What you think that rate cut means for mortgage rates. Anything? Are they actually going
04:52to go up as a result? Well, so much of rate cuts heading toward neutral has been priced in.
05:00So, you know, for example, last year, the 10-year yield broke the order line. And I was like,
05:06wow, if we don't get into a recession very fast, boy, the 10-year yield is this should shoot right
05:12back up. Now, bond trading is a little bit more disciplined this year. So it's been correct heading
05:20itself lower. It hasn't gone too extreme lower to have like a big shoot up. And we're saying this
05:26because, you know, it's December and last year at this time, you know, mortgage rates are near 7%
05:34because the 10-year yield already shot up. We don't have that because we have rate cuts into the
05:39system. And we also have the labor market getting softer. So it's a much different backdrop. I know
05:45a lot of people thought, well, here we go again, they're going to cut rates and the 10-year yield
05:49is going to shoot back up and mortgage rates are going to go above 7% again. And that didn't happen
05:53because the curve of the Fed fund policy is lower. So naturally, the 10-year yield and everything
06:00last year was different because we had no rate cuts into the system and they went straight 50.
06:06As Jerome Powell said, they probably waited too long to do that first cut. So they did 50 instead
06:12of doing 25 to 25. Now you have rate cuts in the system. Now you have the labor data getting softer.
06:18Remember, last year at this time, November and December jobs reports were averaging 262,000 plus jobs,
06:25the two-month average. So the last five months have been averaging 39,000. You see, that's big. That's
06:35material. So not much of a reaction, but typically when how hawkish Powell wants to be, bond yields
06:44typically do go up, but we're kind of in the lower end range of the year. Now, if the labor data starts
06:50improve, right, that's the thing, you know, you have a little bit ways to go up higher, but not like
06:57what we saw in the previous year. I think the previous year was one of these things where we
07:02just got into the rate cut cycle and we're cutting rates. So, you know, we had a lot of leeway to go up.
07:09It's a little bit different now.
07:11So, you know, I know we've talked about this a lot, but it's still confusing to me
07:15why Powell thinks that going from 280, whatever thousand jobs down to 39,000 jobs is completely fine
07:24in a year. And when you say if jobs improve, if labor improves, you know, but it's like,
07:30but aren't we at this really bad number or is he looking at a totally different metric?
07:34I would say they're placing a lot of the blame on labor force growth.
07:40So in their minds, when Jerome Powell said zero job growth to 50,000 is acceptable, right? That's
07:48acceptable. If we created 1,000 jobs per month in that framework, it's acceptable because population
07:55growth has slowed down. He doesn't believe that the U.S. will ever be able to produce large job
08:00numbers. Again, we just don't have the labor force growth anymore. If you look at the labor force
08:04growth, the supply of workers and the demand for workers, we're kind of pretty much balanced where
08:10after the great financial recession, you know, we had, we had a lot of slack, right? Wage growth
08:17wasn't really a rising up or picking up because we had so much labor supply and not enough demand for
08:24it here. You know, we're in their minds. They look at it as we're a balanced economy on the labor
08:30side. But I think some of them are falling back a while. Wage growth is not accelerating.
08:37You know, it's decelerating. That's, that's when, you know, the labor market's getting softer. And
08:42of course, you know, there's sectors of the economy could, you know, especially contractor
08:46construction jobs being lost, manufactured jobs being lost. It's typically never a good thing in
08:51the cycle where manufacturing and construction workers are losing. But again, a lot of deficit spending.
08:56We have the AI boom that's kept construction workers building. So there's a lot, a lot of
09:01things going on that's specifically unique to this cycle. So they, they look at it as now,
09:07Powell admitted, the labor market's deteriorating. You have other Fed presidents who, I think the
09:14confusion people get is these Fed presidents are almost in a sense talking too much, you know? So it's,
09:20it's very conflicted when one person says robust, and then the Fed chairman says deteriorating.
09:26And then that person who said robust two weeks later says, okay, there might be some problems.
09:31You know, it's a little bit too wishy-washy. You know, you can, you can maybe get that from
09:36a fake person, but you expect a little bit more stability. And I think there's just so many
09:42people that did not want to cut rates. You know, they had two rate cuts kind of priced in for the
09:48year anyway, but they didn't want to go anything more than that because their inflation
09:51numbers hit their targets. And I think that's the thing. If the growth rate of inflation
09:56was near 2%, they, they wouldn't sound as hawkish. They wouldn't be cutting anymore
10:02and more than usual, but they wouldn't sound as hawkish as some of them have.
10:08Okay. So we are recording this on Friday morning, but this will go live on Monday morning. So this week,
10:13the week of the Fed meeting, what data will we get that, that might move the needle?
10:20I, you know, the data is kind of just, it's, it's kind of in there already. There's, there's not
10:26really much because the big reports come after, you know, you take all the data and the aggregate,
10:31it's just the same thing. Softening labor market, not breaking and how the Fed really looks at that.
10:37I think this, this week you had jobless claims under 200,000, right? But you had multiple other
10:43data line sets that were negative. So it's one of these things, which, which do you believe in?
10:49I think the Fed will feel a little bit safer when they have the BLS jobs reports coming in, but
10:53some of the other data lines are just saying the same thing. Softening labor market, but not breaking
10:58when the economy breaks, growth slows down, consumption slows down, investment slows down,
11:04industrial production, wages, you know, these things typically all come down together.
11:10So they look at it as, okay, it's not there yet. So we can still work our way to neutral policy,
11:17but it keeps sounding very hawkish. I mean, we said this last Fed meeting,
11:22they could take a layup, but they probably won't. And what did he do? He went hawkish. And now most
11:28likely Kevin Hassett will be the next Fed chair. And we won't, we won't see that hawkish tone ever
11:34again. Uh, as long as Trump is president. Okay. Well, everyone's watching, of course,
11:40we want to know what's going to happen with, uh, with rates and mortgage rates. Okay. Let's talk
11:44about tracker data. What do you think is going to happen here? So here we are toward the end of the
11:49year and the end of the year, uh, weekly contracts, new listings, active, everything starts to
11:55drive itself lower. Like it usually does at the end of this year. So right now purchase apps are
12:02probably the most useful thing, but also, uh, our pending sales data. Cause our pending sales that
12:07again, 30 to 60 days out, it looks. So we've seen a deviation right now, even from 2024, where some of
12:15the pending home sales were deviating from other levels. So we would just want to kind of keep an eye
12:20on that going into 2026. And then when we go into 2026, what do we know? The last three years have
12:26showed us when rates stay near 6%, it can work. It doesn't mean that home sales are going to go
12:31booming or anything, but when you stay at a lower curve for a longer duration, we've never had that
12:38in the last three years, we've always had rates get down to six and then they shoot right back up.
12:44They don't just, you know, slow, they shoot right back up. And if that's not the case, we just want to
12:49keep an eye on kind of how that, uh, uh, weekly and, and, and total pending home sales data and how
12:55purchase apps act. So obviously it's, it's been a surprise for some people the last two weeks having
13:00positive weeklies and year over year, still the year over year is double digits, 17 and 20% back
13:05to back with harder comps. So just get kind of keep an eye into that going into the rest of the year.
13:10And of course the last two weeks of December, you're going to see people go, Oh my God, no,
13:15it's buying home. It doesn't matter where rates are. It's the last two weeks of the year.
13:18So the data volumes always, you know, that that's what happens every year and people make too much
13:24of it. But, uh, uh, again, around holiday, uh, uh, weekends and timeframes, you have to be a little
13:29bit mindful of weekly data and then gear yourself up for 2026, uh, much different than last year.
13:35Last year, I think we're near 7% rates. Bond yields are shooting up higher, you know,
13:40not the case this year, not the case this year. All right, Logan, thank you so much for being on.
13:46Talk to you again soon. Yep. Back to the sunny Orange County.
13:50Or you don't look like you're about to go into the Arctic or something.
13:54All right. Thank you.
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