Will the next Fed move be a rate hike?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the jobs report and how it gives Fed hawks more reason not to cut rates — and maybe even cover to raise them.   Related to this episode:   Jobs data stabilizes, giving Fed hawks more reason not to cut rates  https://www.housingwire.com/articles/jobs-data-stabilizes-giving-fed-hawks-more-reason-not-to-cut-rates/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   To learn more about Total Expert visit totalexpert.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

00:09Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the

00:14jobs report and what that means for mortgage rates. Before we dive in, I want to thank our

00:18sponsor, Total Expert, for making this episode possible. Logan, welcome back to the podcast.

00:23It is wonderful to be here.

00:25Great to have you on, man. What a big day. Jobs Friday did not disappoint.

00:30Okay. So before we get into the labor data and inflation in the Fed,

00:34I have 203 requests from our listeners on why won't you call me chart daddy?

00:42No, because first of all, first of all, I'm your boss. I'm not calling you that.

00:48Oh, wait, wait, wait, wait. What are you doing right now? Oh, you're using the finger.

00:52You know? It came out. Yes. As our producer and I were talking about, I was like, that would just

00:58be creepy if I called you that. No. Other people can call you that. I'm never calling you that. No.

01:03Okay. Fair enough. Well, they asked, so I wanted you to respond to all of them.

01:07I do appreciate it, though, and I appreciate your love of charts. Okay. Well, let's dive into

01:12what we saw with the jobs, which, what'd you think?

01:16So a few months ago, I think it was even late last year, you and I did a podcast where

01:22we said,

01:23you know, there are a, there is a backdrop for things to be better in 2026, right? You know,

01:30the first, the first year of the trade war, because I always bring that up because I remember the first

01:35trade war and, you know, when there's tariffs and everything, not a lot of people know what the

01:39rules are. And, you know, even back in 2018, after the corporate tax cuts, like business investment

01:45went to zero and, you know, people just don't know. So hiring slowed down back then. Last year was a

01:51very, very, very clean slowing of the labor market, a population adjusted or not, you know, the labor

01:59data was getting much softer. But when you're working from the lowest bar ever in terms of job

02:04growth for an expansion still, and jobless claims isn't breaking, there is, again, room to the upside.

02:12And the second year, even though the second year of the trade war back then in 2019,

02:17after a few rate cuts were in the system and rates went lower, things started to pick up a little

02:23bit

02:23more. And then toward the end of 2019 and going into early 2020, all the data was getting better.

02:29Of course, rates went lower back then. I think that's one of the reasons why Trump wants lower

02:34rates, why he wants to take over the Fed to get lower rates, because he remembers how it was.

02:40But right now, the jobs data is getting better. And I'm afraid there's a lot of people who are

02:47listening to people who are going to keep on saying the revisions are negative and, you know,

02:51but jobless claims had been heading lower. Continuing claims have been heading lower. Job openings data

02:57has stabilized. So because it's a stabilization working from a very low bar, the data is improving

03:05in that sense. And we have like four months of data now for 20, and it's better than what it

03:11was

03:11last year. It isn't great. It isn't booming. It isn't anything like that. The labor market

03:15is still soft in the sense. But my break-even rates, like the break-even rates that the Federal

03:21Reserve says, we can have zero job growth and we'll be perfectly fine. Or their number, basically,

03:26I think it's around 30,000. My break-evens are 78,000. You and I have talked about it and

03:32said,

03:32I'm not changing that because I think there's missing people looking for work out there. So we

03:37should have. So we're about 76,000 year to date. Okay. So we're going to get revisions, positive or

03:43negative, whatever it is. It's better than it was last year. So now the Fed hawks, who do not like

03:51Kevin

03:51wars, who do not like Trump trying to take over the Fed, are really going to be, you know, hawkish

03:59in terms of, you know, fighting any more rate cuts as the growth rate of inflation is above target and

04:05the Iranian conflict is still going on. So that's kind of my take on everything now that we have a

04:11few months into the system. But the key thing for this report is that the breadth was better,

04:16right? We've been so heavy on healthcare and social service jobs out there that, you know,

04:23last year we would have lost like eight, 900,000 jobs without a sector. But this year, three of the

04:28four reports that were positive, the breadth was better. So take it for whatever you want to take

04:34it, anybody listening. But to me, it looks like the labor data is improving from a very low base.

04:39And since the Federal Reserve has talked about break-evens being about 30,000 for them,

04:44it's good enough for them to start debating no more cuts. If the conflict keeps going on,

04:52should we hike rates next? No, this is really interesting. You wrote your analysis of the

04:58jobs report and you said, you know, even if you don't agree with their take, it doesn't matter. This

05:03is what the Fed believes. Like this is giving them a signal that says, yeah, a rate hike might be

05:10more

05:10likely than a rate cut. As long as this conflict goes on and we have elevated oil prices, elevated oil

05:20prices with a growing economy, and then diesel prices with food inflation picking up, coming off of,

05:27you know, inflation being elevated before the war started, the hawks do not want any kind of rate

05:34cut discussion whatsoever. And you'll probably see some of them advocate for a rate hike if things

05:41don't get better soon. So I'm setting this like, you know, a backdrop now on, now if the conflict ends,

05:51oil prices go down, diesel prices go down. And what the Fed was thinking about, that the tariffs,

05:57like Trump's 10% tariff that he wanted to do after he got the Supreme Court to go against him,

06:02that was knocked down. So there is a, there is a backstory here about, you know, Hey, listen,

06:07if the, if there's no tariffs being collected and the conflict is over, then, you know, those last

06:14two to three rate cuts that are left in the system for this cycle can happen, but there's a lot

06:22of,

06:22you know, variables that need to change for that. But for right now, like year to date, 76,000 jobs

06:30created, that's close to my running. That is with the Fed talking about, you know, inflation being an

06:36issue, that's good enough for them. So now the 10 year yield went lower, right after the jobs report,

06:43because a lot of people are thinking we're going to get a deal soon. So just remember 65 to 75

06:47% of

06:48where the 10 year yield and 38 mortgage rate can range is Fed policy. The Fed has not guided higher

06:54yet. Because of that, everything's kind of in check. We always talk about that bull pattern with

07:00the 10 year yield, you know, under 430 to 4%, that, you know, neutral policy gets us there.

07:07So it'll be very interesting for the rest of the year, the longer this irradian conflict goes,

07:13and now you have clear divide, a clear civil war within the Fed.

07:17It is, it's an even more contentious backdrop for Warsh to come in. I mean, you know, and,

07:23and as you've pointed out, like, Kevin Warsh to what the original Kevin Warsh, right,

07:29not this version of Kevin Warsh, would have probably thought a rate, rate hike was the right thing to do.

07:34If this was Kevin Warsh 1.0, okay, Kevin Warsh 1.0 would be like, no, no, we need a

07:4250 basis point

07:43emergency hike. Tariffs are bad. Deficit spending is horrible. Oh my God, you know,

07:49that Kevin Warsh would be extremely hawkish. However, Sarah, what do we have?

07:56Yes, we have a, we have Kevin Warsh 2.0, which is Trump's boy. Okay. You can make that,

08:03that whipping sound. Oh yeah. When I was a kid, I was always doing, you know, I was,

08:08I thought it was Indiana Jones. So I just ran around and, you know, but yeah, it's, it's just,

08:16you know, now, now I think with oil prices elevated and gas prices up, now we have to be mindful.

08:22What does this do to the consumption data, especially on the lower income side? You know,

08:28we see these casual restaurants, you know, starting to war and we saw a whirlpool kind of

08:34worn out there in terms of it's missing its earnings. So it's something to think about going

08:39out in the future with the, with the data, but it's a much different ball game now than was last

08:46year. Logan, let's talk about the, the oil prices for a minute, because gas prices is one of those

08:51things that people feel very strongly. We're heading into summer, which is normally when people

08:56travel more, they see, you know, a pain at the pump more. What do you think rising gas prices does

09:02to

09:03the overall economy? So number one, you know with inflation going up higher, your real wages are less,

09:12right? You know, so, you know, you and I've talked about this once in, in, in, in an odd truth,

09:19your real wages actually get better during a recession because oil prices tend to crash.

09:23And then because of that the headline inflation data tends to come down pretty aggressively,

09:29but your wages are still at a certain base. Now what happens is people feel like they're making less

09:35money. That's why, you know, getting inflation down. One of the reasons why the Trinity impact was

09:41getting oil prices down is that your real wages look good. So let's say if inflation was running at

09:472.5%, but your wages, the wage growth in this report was 3.6%. So your real wages are, are

09:56still

09:56positive, but you know, if, in, if inflation is running at 3.6% and your wage growth is running

10:04at

10:04three, you, you, you have no real wage growth. So sentiment, I think the crazy thing is that the

10:10sentiment index, which I think all sentiment indexes are trash anyway, was not like an all time low,

10:15you know, today. And it's just that with gas prices and food prices are things that people see

10:21every day and politicians tend not to do well when that's the case. And that's the history of like

10:30civilization going back, you know, since the Peloponnesian war actually, where any kind of

10:37inflation burst, people get mad. So oil prices is one of them. Diesel prices leading to higher food

10:42prices. That's another. So these are things that sentiment can stay worse and disposable income,

10:47especially on the lower income side can get hit to a degree. Is it recessionary? I, I don't see

10:54recessionary data post 2010 qualified mortgage with higher oil prices. You would need credit contraction.

10:59You know, household balances are just so much better now. And what we pay as a percentage of

11:07our income to gas prices are lower now than what it was decades ago. So that's why, you know, it's

11:13not

11:13the recession in, you know, top variable oil prices would have to be so much higher adjusting to

11:20inflation to even at the late seventies, like $400, $415. So we're not, we're not, we're not there yet.

11:26We've been here before 2011 to 2014. We were here in 2022, but again, the longer it goes,

11:34it's not good for the white house. And, uh, um, and it's not good for the midterms because food and

11:43energy prices are things people deal with. Mortgage rates are something that people deal with because

11:47everyone, you know, every single month we get people buying homes. We still, you know, we still

11:52have near 5 million total home sales, uh, uh, maybe even more than that this year. So it's something

12:00to keep an eye on going out. Like I said, we saw some fast casual diners also just worn and,

12:06you know,

12:06we see, uh, uh, uh, some appliance companies worn. So it's something to keep an eye on going out in

12:13the

12:13future for sure. So let's talk a little bit about timing. Um, like if you, if we were to see

12:18rate hikes,

12:19when do you think that would be, be potential? Is that the summer? Is that in the fall?

12:24So the only way you're going to get rate hikes this year is that you get some of the mild

12:30doves

12:31to join the Hawks and somehow Kevin Warsh okays it. So, uh, uh, the one benefit of having Kevin Warsh

12:40while Trump is president is Powell might be more prone to hiking rates in this situation. Kevin

12:47is not going to do that under any circumstance. He's going to fight it tooth and nail.

12:52So that is why president Trump wanted Kevin Warsh there because Kevin's not going to hike rates.

12:59Uh, uh, um, Kevin, Kevin 1.0 would, if there was a Democrat in the white house, yeah, Kevin will

13:05hike her. But as long as Trump's there, he's not going to do it. I mean, Myron and, you know,

13:08Kevin Hassett came out today, the white house economic council and said, we believe Kevin

13:13Warsh is going to cut rates. It's not Kevin Warsh himself. You have to get a committee.

13:17So I don't see a rate hike, uh, um, this year, but next year, if inflation still keeps on going,

13:27uh, and you, you get, uh, the labor data picking up and wage growth picking up then. Yeah. I think

13:33even, even someone like Kevin Warsh, uh, can't run away from that if that's the case. So I don't see

13:39that as, as the base case and the fed could have guided higher, you know, right now, all you do

13:45is

13:45you have a few hawks that are making a lot of noise. And then you have a few doves who

13:50are pretty

13:50much being quiet for right now. And then you have Kevin Warsh and Myron who are Trump's people saying

13:56rate cuts are still in place. So, uh, um, very interesting, very interesting civil war brewing

14:04up here, but just kind of take it, the labor data stabilizing and it got better from a very low

14:09bar,

14:10uh, um, wage growth is running at 3.6%. That to me is still too high for the federal reserve.

14:16They really need wage growth to come down to 3% and under to feel real comfortable about getting to

14:222% inflation. So it's a different backdrop. And now that we have a few months into the system,

14:28we get to see now, does the higher oil and inflation data impact consumption, uh, going out?

14:34So we're, we're, we're in that phase now, but again, the first few months of the year,

14:39labor data got better, right? That's, that's the given. And I know a lot of people say, well,

14:43all these companies are laying off people says in one and a half to 2 million people in normal times,

14:48lose their jobs every month, companies, right size, people do bad, you know, that, that happens

14:54always when you have a recession or a labor data breaking, uh, growth slows down, consumption

15:00slows down, industrial production slows down, retail sales slow down. Uh, uh, you see this whole,

15:06the whole enchilada of the economy kind of moving into direction. And we just don't have that in the

15:12data. And again, we just, we don't have a lot of people looking for work. Like, you know, we used

15:16to

15:16as a younger country and, uh, with less population growth out there, the unemployment rate can stay lower

15:23because Japan has showed us that for decades and decades and decades. So if you're in housing,

15:28you should, I mean, probably mortgage rates are going to stay in the range that they have been

15:33from here down to six, from here up to, you know, maybe closer to seven, hopefully not with,

15:39with the spreads, but you don't see a, a, a huge change in mortgage rates.

15:44So the range for 2026 was 5.75 to 6.75. So far, the range is 5.99% to

15:526.64.

15:53Everything looks normal because the fed hasn't guided higher. Right. So I could get up to 6.65

15:59if the labor data was doing better and, you know, inflation was picking up that's, you know,

16:03we got close to 6.65. So if the, if the fed starts guiding, I think part of that is,

16:10you know,

16:10one of the reasons why they got Kevin Walsh in there is because you're afraid of Powell getting

16:16hawkish here. Right. And he's got things he could say. So I think that's one of the reasons why they

16:21canceled that investigation. And, you know, Trump really needs to just let that go. I think Trump

16:27just wants to get total control of the fed. So he wants to get, you know, he wants to get

16:33Powell

16:33out. He wants to get Lisa cook out and put people, put his own people in, but it gets just

16:37more

16:37difficult and dicey in the situation. So a rate hike is not in my, but it's something that, you know,

16:43you're going to see more hawks get chippy, you know, and it's, it, we'll see how the rest of the

16:52year goes with, you know, how much oil prices really impact demand going out in the future.

16:58Okay. Well, we're headed into the weekend. We know this can be a wild time. Friday night after

17:03the markets close is often a time of big announcements. We will, of course, have the

17:09tracker out by the time this comes out. Anything else you're looking at?

17:13No, Sunday night futures, you know, here we go. You know, I'm doing these Instagram lives daily

17:18now, sometimes twice a day to get all this headline. Of course, the Iranian conflict is

17:22running a lot of the bond market numbers right now. So we'll see if again, just imagine that the

17:30conflict's over and oil prices fall. And then we could go back to if the terror, if the tariffs are

17:36gone, if the 10% tariff is gone, right? If that can't happen, you take the tariffs off and

17:42you get oil prices coming down with diesel prices. Those are things that the Federal Reserve can get

17:47a little bit more dovish on to get those last two or three rate cuts into the system. And just

17:51remember, it's really hard to get mortgage rates under 5.75% if neutral policy is at three. And

17:59that's, that's why I've kept that line in the sand and kept that 10 year yield at 380. You know,

18:04you need like weaker labor data or the Fed getting dovish out there. Now the spreads are getting

18:08better. Oh my hog of mortgage spread this year. Wow. Could you imagine if we, the spreads didn't

18:15improve, boy, we're over seven, we're near 8% if we had 2023 spreads. So housing data is, you know,

18:21holding up pretty well. And we just take it one day at a time, right? There's just nothing normal

18:26anymore after 2020. There's a lot of things going on now. Amazing. Logan, thank you as always for being

18:31on. We will talk to you again soon. One of these days, I'm going to get you to say chart

18:34daddy.

18:35I don't know how I'm going to get, I don't know how that's going to happen, but I will find

18:38a way.

18:39It's never going to happen. Plenty of people call you chart daddy. It doesn't have to be me.

18:44The boss could say it, you know, Clayton said it on stage at the gatherings.

18:48It pained Clayton to say it on stage. It did, but he did it. Do you know why? Because the

18:53public,

18:54Wheeler, the public, the public loves the chart daddy.

18:58Okay. Well, we will talk again soon. Thanks, Logan.

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