Logan Mohtashami on the Fed meeting and mortgage rates

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the Fed meeting and what it means for the 10-year yield and mortgage rates.  Related to this episode:  Fed holds rates, officials signal wait and see on inflation risks https://www.housingwire.com/articles/fed-holds-rates-oil-risks/  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. http://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

00:10Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the Fed meeting and

00:15what it means for the 10-year yield and mortgage rates. First, I want to thank our sponsor,

00:19Trust in Will, for making this episode possible. Logan, welcome back to the podcast on this Fed

00:25day. Yes, you're in Las Vegas. I'm in Frisco, Texas. I couldn't get internet in the hotel room,

00:31so I broke into some meeting room, cracked the code, and we're here live talking about the Fed

00:37day because pretty eventful daily action today. Incredible. Okay, give us the takeaway. Of course,

00:44we didn't get any rate movement. No one expected any rate movement today. From your perspective,

00:49what was the key takeaway from the Fed meeting today? I thought this was a very clear kind of

00:57hawkish tone of the press event. The Fed statement wasn't anything too market moving, but when Powell

01:08started to talk, and I think the easiest way for me to explain this is that he basically said,

01:15listen, inflation is up. Now we have this conflict. We don't know how bad the conflict is going to be,

01:22but we really need to see some improvement in inflation if you want any rate cuts.

01:30So to me right now, the market is properly priced all rate cuts out the door. Okay, so if there's

01:38a

01:39Kevin Warsh is listening to this, hide yourself from every camera, go find a cabin in the middle of

01:45nowhere, lock yourself up until this conflict is over because you cannot come on TV or answer anybody's

01:52questions because the only person that dissented today was Myron, and Myron is another Trump boy

02:00who's going to do what he wants. And even the doves, as we talked about before, went a little bit

02:07hawkish. So it's a tough spot for the Federal Reserve because today the PPI inflation was hot.

02:14The PCE inflation is 1% above target, and the unemployment rate is 4.4%. We're at this point

02:22to where they need to feel a little bit better before they start guiding anything. So I thought

02:29they punted pretty well on the Iran conflict, but it's basically wait and show me if you want any cuts

02:37this year. And the labor market better be aggressively breaking for us to change anything

02:43on our language. So, I mean, how did he respond about, you know, he mentioned the bad jobs report

02:50that we just had, but it doesn't seem like it swayed him at all. They don't care. I mean,

02:55you know, I mean, I mean, for us, you and I have talked about this for, for some time. Jobless

03:02claims

03:02is their real key labor data, right? And it's hard to get people convinced that they really need the

03:11labor market to break to make that next move. Or, you know, we're just in the process of trying to

03:17get to neutral. But with inflation above target, and now you have this conflict, I mean, the short

03:24version is you need the labor market to break. I mean, you, we, you can have negative jobs reports

03:31actually for the next three or four months. I don't think it would move them if the unemployment rate

03:36is not rising with it. So he talked about break-evens, maybe even no growth is, is possibly

03:44really fine now again. So to me, he just said, listen, in this environment, we need to see

03:50progress on inflation. If you want rate cuts, they still talked about rate cuts possibly happen,

03:54but it was just basically the labor market really needs to break because we don't really care about

04:00the headline prints or the revisions anymore. So I, in a way I don't blame them because in this,

04:09in this context, we have rising goods, inflations and non-housing service inflation is picking up.

04:16Also, this is not what they kind of wanted to see occur. And now you have the Iran conflict

04:23on top of everything else. So the Trinity impact of low energy prices, low diesel prices,

04:30stuff that would input into food and transfer, all these things are now elevated because of the

04:36conflict. So they kind of push to conflict, say, well, we'll, we'll, we'll wait and see what the

04:40final outcome is. But it was really one of these things we need to see the progress and we know

04:45the

04:45jobs data isn't great, but it really needs to be really bad for us to kind of change at this

04:51point.

04:52So he also pushed back against the idea of stagflation saying that like, listen, this isn't the

04:57seventies, which I know you've said, right? What did he have to say about that?

05:00I thought it was a good example of stagflation was double digit unemployment rates,

05:05double digit inflation, the misery index that they kind of run those models off of. We're very,

05:11very elevated. We don't have that now. The unemployment rate is under 5%. We're talking

05:17about 3%, 3.1% PCE inflation. So it's, it's not like the seventies. And he basically said,

05:24if you're not talking about the seventies, I'm not talking about stagflation in that context. We don't

05:29have 4.4% unemployment rate wage growth above inflation still and talk about stagflation, which

05:37I thought was perfectly fine. I think that, that was a good way to explain it because everybody wants

05:41to talk about stagflation. But I just think on top of everything, the Iran conflict is just such a

05:49variable. I mean, it's going on now into week three and they, they really did punt it and just say,

05:57well,

05:57wait, wait, because if we're talking about the Iran conflict in the next fed meeting, something went

06:02wrong, something terribly went wrong. Cause this isn't, this is no longer a quick kind of go in

06:08there, take care of some business and, and, and let it, if we're talking about this six to eight weeks

06:13from now, something happened. And that's kind of in a sense escalating in another way today as well. So

06:23with everything said, I think the last time I saw the 10 year yield was at 4.27.

06:29Thank a mortgage spread again, because any other time mortgage rates would be up above 7%

06:36in the last few years. Uh, and you know, he might not have weighed the jobs data, but if, if

06:43the labor

06:43data was solid, we're having higher rates, you know, so that's, they acknowledge that the labor

06:50market is soft, but at this point they're like, listen, unless it's breaking, we're, we're not

06:55seeing the progress that we want on inflation. And this can't be fully on rent anymore on the CPI side.

07:03The goods inflation is picking up. We're going from 9.7% tariff collection to 15% and we have

07:10a war.

07:11So can you really blame them for doing this today? Uh, uh, if part of their dual mandate

07:18and it could have worked if oil prices were lower and, you know, whatever the, whatever the tariff

07:26thing would have been through duties or whatever it is, but we went with the 50. So there's just way,

07:31there's way too much government involvement in trying to manage an economy for them to feel more

07:37comfortable. Uh, uh, so that's why I thought the 10 year yield properly started to rise up higher

07:46and stock sold off in that environment. So, um, you mentioned Warsh, but you know,

07:52Powell made it clear today. He's not going anywhere until, um, he's perfectly happy staying there until

07:57that investigation stops. He even said, he's like, I'll, I'll just stay on if that's what it takes.

08:01We talked about this, that I don't, I don't, I think Powell's is going to be here a lot longer

08:06than, uh, than people think because you cannot have Kevin Warsh come on TV in this environment

08:17because Kevin Warsh has to be like everyone else. Now I know Myron dissented, but if you're the head

08:24of the fed chair, who's known to fighting a commodity inflation and input inflation and say,

08:29you want big rate cuts, it's not going to happen. So, um, Powell might be the fed chair for the

08:38remainder

08:38of the year, unless they want to get this Iran conflict resolved, make sure oil prices are coming

08:45down, make sure diesel prices is coming down, make sure there's some clarity there. And then you could,

08:51whatever you want to do with, uh, Jerome Powell, but at some point Trump has to let Powell go.

08:59Okay. Just, just let it go. But also I don't believe he can have Warsh talk for the confirmation

09:08hearing. Could you imagine if Warsh went on TV and they're going to ask him all these questions about

09:14the war and inflation and everything and everything that Warsh has said in the past,

09:19he's just, you're just setting yourself up and I just, I, you can't have him talk in this manner. So,

09:25uh, it's, it's complicated now, right? Cause we're now, we added a huge, crazy variable on top of

09:32everything else. But, uh, yeah, I imagine Powell's going to be here, uh, longer, unless the war ends

09:38quickly and things get back to somewhat pre, uh, pre, uh, Iran conflict. And then you could have

09:47Kevin Warsh come on and just basically say the token lines that tariffs are one times inflation.

09:53Well, I mean, Warsh hated tariffs always. He's a free trade guy too. So they're just,

09:58there's no good ending for him right now. If he talks, so, uh, things have to clear up before they

10:04get him in front of a camera. You talked about the Trinity effect with diesel at $5. Are you surprised?

10:09I mean, do you think that the 10 year yield is acting like you thought it would at this level?

10:14So 65 to 75% of what I think the 10 year yield should do is fed policy. So fed

10:22policy is less strict

10:23now, but also the labor data is the 21st century lows in job creation, right? So if I put the

10:30fed policy

10:31policy and the, we haven't, we don't create jobs, right? If it wasn't for healthcare and social

10:37services, jobs will be negative the last 12 months. So when you put those two together,

10:42what the 10 year yield is doing, isn't crazy out there. But again, like I've always said,

10:47if the jobs data was better, it's a whole different story. If we're paper, rock, scissors,

10:52labor over inflation, it works both ways. It can work on the upside on yields, but for right now,

10:58labor data is just, and I think there's this constant tug of war between bond traders right

11:04now that, you know, can the economy take this kind of tax, this kind of hit with diesel,

11:12this kind of hit with gas prices, this on a, on a point where we're not creating jobs outside of

11:18two sectors. So there's, there's conflict there because, you know, if jobless claims was breaking

11:25higher, we have a different story, but jobless claims hasn't broken higher. And that's why I've

11:29always, since 2022, always said everything revolves around jobless claims. And again,

11:36to me still is, I really, truly believe this, the Federal Reserve really wants wage growth at 3%

11:42and under. If they would feel so much better, I know they, I know there's all this talk about

11:47productivity and AI disinflation and everything, but if wage growth gets down to 3% and under,

11:53it's easier to get to 2% inflation. So they kind of talked about what they always say all the

11:58time.

11:59The labor market is not a source of inflation right now, but they always fall back on that,

12:07you know, 3% wage growth, 1% productivity, 2% inflation. Well, is the AI disinflation real or not?

12:14So

12:15it's complicated. Wheeler, it is, it is a complicated year in this time when you have

12:21to put Powell toward the end and you have the Iran conflict on top of everything else.

12:26I think that is the, the theme. It is 24, the movie, uh, the series 24 is also, it's complicated,

12:32right? Um, anything else that you wanted to say from the fed meeting about the fed meeting?

12:37I mean, to me, it's, I understand what the fed did today. I understand that some of the, uh,

12:45some of the doves became hawks because there's, there's a lot, there's a lot of things that are

12:50happening with the inflation data that would make them a little bit more, uh, uh, concerned,

12:57but the federal reserve talked about tariffs being a one-time price hot. So they, they say this by the

13:02middle of the year, we should see some improvement. If that occurs, you could get your one or two rate

13:07cuts. I mean, we're basically toward the end of the rate cut cycle, right? Regardless what, how many

13:12great cuts Trump wants? So it becomes this. Now we have a war, we have a conflict and it's pushing

13:21up

13:22commodity prices. How long that lasts? Does it impact? Because to me still, if, if the economy

13:28can't take it, then what the 10 year yield is doing can possibly go lower. But again, neutral policy,

13:35380, uh, we always had the whole door line since 2023 for a reason. It's really hard to get under

13:44380 on the 10 year yield unless the labor market's breaking by 2024. The market thought the labor

13:50market was breaking. It wasn't the case. So, uh, uh, it, it, it was, it was a very conflicted

13:57fed meeting, but I totally understand what they were saying, uh, today. And Trump's got to figure out

14:03what he wants to do with Powell and this stuff. You mean this, this lawsuit and all this, and then

14:07these are theatrics. Okay. At some point you got to put your man in there or not.

14:13Okay. But I just, I just don't think he can put Warsh in this environment because they're going to

14:19light him up in Congress. They're going to ask him all these questions and they're going to go

14:24back to everything he said in the past and say, why did you believe this here? Why don't you believe

14:29you cannot put your next fed chairman in that bad of a position? And remember,

14:35Warsh is a controversial pick, right? So he put him in there for a reason. He wanted rate cuts,

14:41you know, and, uh, uh, he can't get them in this environment right now. So I think, uh, uh,

14:48keeping him in a cabin locked away in some mountain with the dwarves and elves and something,

14:53just let him stay there until this. Well, Logan, thank you for breaking into a conference room

15:02at your hotel so that we can do this. One last thing, uh, purchase application data came out,

15:07uh, today. And I always like to see like two weeks of data with a little bit higher rates and

15:13how that

15:13works out. So again, positive plus 1% week to week plus 12% a year over year. So as

15:20of now,

15:21we always want to wait with a little bit of duration. We haven't seen a negative impact,

15:26but then again, mortgage rates were 680 last year at this time, you know, uh, uh, so, uh,

15:34pricing was 631 today. So rates are still lower on a year over year basis, but, uh, we'll see how

15:40the

15:41next few weeks goes. And again, it's almost March 21st. We could talk about, you know, the conflict,

15:47uh, with Iran and everything, but there's a lot, there's a, there's a lot of things going on now

15:52because it's 24 and it's 24, you know, what's gonna happen. Some, something's gonna pop out every

15:57hour. And, uh, uh, I, I thought this was a very interesting fed meeting. It was a, it was a

16:02very

16:03hawkish tone, but it was also, Hey, listen, Powell saying I'm staying here until you get that lawsuit out.

16:09Judge told you to go away. And, uh, um, I just don't think you could put Kevin Warsh, who's probably

16:16not the most popular pick within the federal reserve into this environment and have him say,

16:21well, we want a lot of rate cuts now. And it's just like, it wouldn't make sense at this point

16:25with PPI inflation rising and PCE inflation rising and goods inflation rising and non, you know, uh,

16:34non-housing service inflation rise. So it's, it's complicated, Sarah, this is a, this is,

16:39I mean, as a, as an analyst, it's really interesting to see this, this, uh, dichotomy,

16:45but, uh, it's not a normal cycle. It's not a normal year. And we have a lot of crazy moving

16:52parts

16:52right now that just we're not accustomed to, uh, in other cycles in the past.

16:57Well, Logan, thanks as always for jumping on, giving us your insight and, uh, listeners,

17:03you guys got to join us at the gathering in, uh, at the end of April in Austin here, Logan,

17:08hear us together. Um, those, those tickets are about to go up. I think, um, you guys get your

17:13tickets, come see us and Logan, we'll see you soon.

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