How many times will the Fed hike rates this year?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about this week’s Fed meeting — the first under new Fed Chair Kevin Warsh —  and how many rate hikes we should be expecting this year.  Related to this episode:  Markets await Warsh’s first meeting as Fed chair https://www.housingwire.com/articles/warsh-fed-debut-cpi/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire https://lnk.bio/housingwire  The Top 5:  Google expands real estate listing ads to all 50 states https://www.housingwire.com/articles/google-listing-ads-nationwide/  The Iran conflict hasn’t pushed oil and yields higher this week — here’s why https://www.housingwire.com/articles/the-iran-conflict-hasnt-pushed-oil-and-yields-higher-this-week-heres-why/  Jay Clayton tapped for DNI role as Congress pushes back on Pulte https://www.housingwire.com/articles/pulte-clayton-dni/  OneTrust sues UWM, E Mortgage Capital over trade secret theft https://www.housingwire.com/articles/onetrust-uwm-emc-lawsuit/  AI could push real estate commissions lower, Alloy Advisors says https://www.housingwire.com/articles/ai-pressure-commissions-alloy/  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 this

00:14week's Fed meeting, the first under new Fed chair Kevin Warsh, and how many rate hikes

00:19we should be expecting this year. Before we jump in, I want to recap the top five trending

00:24stories on HousingWire.com. First up is the story from several days ago on Google expanding

00:30real estate listing ads to all 50 states. And then Logan's article on why the conflict

00:35hasn't pushed oil prices and mortgage rates higher yet. Next is Jay Clayton tapped for

00:40DNI role as Congress pushes back on Pulte. Then one trust sues UWM eMortgage Capital over

00:47trade secret theft. Finally, we have an article on how AI could push real estate commissions

00:52lower. You can read all of those articles with a subscription. And as a listener of this

00:56podcast, you can get a 20% discount with the code PODCAST20. Logan, welcome back to the

01:02podcast.

01:03It is wonderful to be here. Of course, it's Friday morning. A lot of news yesterday, of

01:09course, deal in the works, when we're going to get signed, anything like that. But oil prices,

01:17this is 84, 10-year yield, 446, 448, like we've always talked about. If the bond market really

01:23thought that this is ending, that's where we should start the next stage of this conversation,

01:30Sarah. And the next stage of this conversation is how many times is the Fed going to hike

01:35rates now?

01:36Yeah. So, okay, we have a Fed meeting on Wednesday. This is going to come out on Monday. So on

01:40Wednesday,

01:40we'll have a Fed meeting. All eyes are on the Fed. Do you expect them to do anything at this

01:46meeting?

01:46I expect them not to make a move, but maybe lose their easing bias now. Kevin Warsh is

01:55going to try to change a lot of things at the Fed. And, you know, it wouldn't be a surprise

02:02to me if Kevin Warsh says, by the way, we're not going to do press meetings anymore after.

02:07Oh, interesting. I hadn't thought about that.

02:11So we're going to see a whole new kind of regime at the Fed. So what are they, what are

02:17they going

02:17to do? What are they going to talk about? So it's a very interesting meeting in that, but

02:21most likely probably the easing bias goes away and you're probably going to get a lot of people

02:27talk about, you know, we, you know, if, if things don't get better soon, rate hikes, you know,

02:33some people have four rate hikes coming up. Some people have two, some people have three,

02:38you know, but already kind of one rate hikes already priced in, or you might get some pushback

02:45from people that say, well, the breadth of inflation isn't very big. You know, wage growth is still

02:49trending lower. All this would do is just be a net negative to the economy because the inflation

02:58here is, is, is something that over time should work itself out. There's, there could be a battle

03:05there on that, but for now we have to think about rate hikes instead of rate cuts. And it'll be

03:12interesting to, if there is a Q and A, which there should be, how do they look at this going

03:17out in

03:17the future? So when we're in a rate height cycle, do you think about it as like from here to

03:21the end of

03:22the year or here till like, is there like a, is that a 12 month cycle? Like what does that

03:26normally

03:26look like? So it really depends on where you think inflation is going to go. If the fed wants to

03:31get

03:32restrictive policy, then they need the fed funds rate at least two basis points higher than what

03:37it is right now. You know, so there's the, there, that would be a lot of rate hikes into the

03:44system

03:45for right now. It's kind of like, okay, we'll wait and see. We don't really want to commit to it.

03:50So it really depends. Now if wage growth was accelerating higher and job growth was,

03:57I would have a much different take because the federal reserve really would love to see wage

04:01growth under 3% because they, they believe that will impact, but also we're in the stage to where

04:08inflation is running, you know, higher than wage growth, you know? So it's like, okay, we have this

04:14to worry about now we're going to have rate hikes, you know, you know, there's all these things,

04:18by the way, does anybody remember the credit card interest? They were supposed to get rid of that.

04:24Remember that whole thing about people like nobody remembers that anymore. I was like,

04:28y'all remember that. And we're like, nobody talks about it anymore. Well, you know, um,

04:35if you get a lot of people that are talking about rate hikes, watch that come back into the,

04:39to the fray toward midterms, uh, um, because you know, short-term rates, credit card rates can,

04:45can go up. So for now, kind of one rate hike is priced in, but it really depends on,

04:52you know, oil's now at 84. We've had oil at 84 with the growth rate of inflation team. There's

04:57more things that work here. So, uh, it'd be a good back and forth to see, you know, cause there's

05:03a

05:03lot of people in the federal reserve who just, let's be honest, don't like wars. They don't,

05:08they think of him as Trump's person. And, you know, he's going to try to shut them up,

05:13you know, from talking too much, you know, you know, the bet hammocks or the Lori Logans and the

05:17Austin Goolsby's and the Kush cars, you know, stop telling people you want to hike rates and stuff

05:22like that. So here we are, uh, it's a new regime and, uh, uh, it's get the popcorn out, man,

05:30just get the popcorn out for the rest of the year with the fed and going out to 2027 as

05:34well.

05:34Okay. So, you know, our industry 2022, no one is ever going to forget the steep

05:41way that, that they hiked rates, like not only how many, but, but by how much in such a short

05:47period of time, give us some context on if we get rate hikes here, what are we, what are we

05:51looking

05:52at? You know, to me at worst case, if you're thinking inflation is really going to be running

05:57at three and a half percent to 4%, you, you, you, you want to get to a neutral policy, uh,

06:03then you,

06:04you, you need about four rate hikes. That to me is like the worst case scenario. Uh, uh,

06:10and four rate hikes of how much each quarter each, you know, the fed doesn't like to, the fed doesn't

06:16like to push multiple rate hikes at one event because unless you're really behind the curve.

06:21So, uh, we're not technically didn't get back to neutral policy yet. So because of that, you

06:28don't need as many rate hikes to get to neutral policy with inflation growing. So, so we'll see

06:34again, I I'm pretty sure Warsh is going to do whatever he can to prevent rate hikes from coming

06:40into the system. But, uh, there's, there's just too many hawks right now. Now assume that oil starts

06:48flowing, energy prices start to come down. We're not going to get oil prices back down

06:53to 50, you know, $6 anytime soon, but just getting it into the seventies, much more workable, like

07:0067 to 76. You know, we had that back and forth period of time for a while there, but, um,

07:08it

07:08gets complicated. You know, I mean the, the, I mean, if president Trump really wanted to, he

07:13could say, Hey, listen, or we're going to, we're going to let oil flow and no, no tariff

07:17collection, right? I, we lost the Supreme court, you know, so the federal reserve was very adamant

07:23about tariffs being inflationary. So if you wanted to play that game, I don't think, I

07:27think president Trump loves tariffs. You know, he can't do bully ball without them. So, uh,

07:32but if you had taken, if you take tariffs off and then get oil flowing, then Kevin Warsh could

07:37say, Hey, listen, I, we, we don't want to, we don't want to hike rates into this. We're doing

07:41the things that you guys said, you know, you're mindful of, but it's, it's a give and

07:47take on what's going on with the economy. And there's nothing you could do with chip shortages

07:50and like paying a lot for a Dell computer that needs so much power, you know, because

07:55of AI, you know, but other things is going to be more precedent in terms of how they view

08:01this type of inflation. Cause the breath isn't really there and wage growth isn't like kicking

08:06up higher. Uh, so there's time to maybe create an alliance to maybe say, just hold

08:13off until, uh, uh, we get the middle East situation, uh, handled and the tariffs run

08:18off. But again, this is June, we're going to the second week of June and it's, it's, it's

08:24much different now, uh, where we had a lot of supply of oil around the world. Now, you

08:29know, we're draining reserves and try to keep things up there.

08:32Well, okay. So, um, relate that fed funds rate, if they're hiking that to mortgage rates,

08:37what does that look like? And does that change your forecast for the year?

08:40Nothing ever changes my forecast, uh, on anything I do. I just always assume that if something

08:47happens, we will take it to the next level. This is why I don't like doing hypotheticals

08:51with the fed until, because 16 things can happen between now and the second meeting that

08:58could change this variable. This is why I never change things. I like to take

09:02things one day at a time and work off of the live data. I do not want to be one

09:05of

09:05these quarterly yearly people. Hi guys. Worthy greats are going to come here, but for right

09:11now, as long as they don't talk, talk hawkish, right, they can keep, I mean, mortgage rates

09:18still haven't gone below above 6.75. There's a lot of, a lot of things are already priced in

09:23into mortgage rates already, uh, uh, out here, but, uh, you need it for it to make another

09:28leg higher. You need the fed to be aggressive. You need the labor market to come back. You need

09:32wage growth to go up and you know, the economy has to re-accelerate in a bigger fashion. So

09:37we will cross that bridge when we get there. But for right now, the main thing for everyone,

09:43because everyone's got to work with today and tomorrow and next week, a lot has been priced in

09:48to the mortgage market world. And again, spreads have kept things at bay. If spreads, if spreads

09:55got worse, right, if the fed got really hawkish and the spreads started getting it, then that's a

09:59whole different story, but we will cross that bridge when we get there. Uh, there's too many

10:05things in play right now that could, that could prevent things from, from me talking about rates

10:09getting above six, 6.75. Again, if the conflict took off and oil prices are higher and inflation goes

10:15higher, you could get 37 to 43 basis points on top of a 6.75. Oh, kind of think of

10:21it as that.

10:22That's your limit to the upside on there with where spreads are at. Now everyone could see why

10:27spreads are so important, uh, for mortgage rates. You're not getting 8% mortgage rates with spreads

10:33down here, uh, where the fed fund policy is at. And you're just to remind everyone, your forecast

10:38for mortgage rates this year was six, seven, five on the high end, high end 5.75 low end. I

10:43never go

10:44below 5.75 because we do not have a lot of history of mortgage rates getting below 5.75 with

10:50fed policy

10:51neutral being at 3%. So this, there's a reason why we don't go below there the last few years

10:57is because historically it would be extremely abnormal. You would need like, for example,

11:022024, the 10 year yield got to three 62. If we had normal spreads were below 5.75, but I

11:09mean,

11:09it takes other things to push us there. So, so I know a lot of people just try to think,

11:14well,

11:15so-and-so said they're never going to buy a house unless rates hit 5%. They're never going to buy

11:19a

11:19house. Just kind of think of it as that, but there's a way to explain it. And you take the

11:24history

11:24of 30 year mortgage rates spreads, the slow dance, right? The fed funds rate. And it's just really,

11:31really rare to go below that unless the labor market breaks and the fed gets dovish. The fed has never,

11:36ever gotten dovish outside of, you know, just trying to get to neutral policy. And this is why

11:42we believe in ranges and the slow dance and talking about a day in and day out. We don't believe

11:47in

11:47forecasts. Forecasts are prehistoric. They're slow. They don't teach people what's really going on

11:53every single day. Look what happens. One or two things change. I mean, you have a forecast. So,

11:58I mean, you do a yearly forecast. We have a forecast, but we have ranges. We don't put a target

12:02rate.

12:03We don't say mortgage rates are going to be 6.5%.

12:08Really? So, there's no curve up and down? We do ranges and we work off the ranges. And same thing

12:15I've did in the last decade when I started doing this in my forecast. The last decade was really

12:21easy, actually. It was 1.6 on the downside to the 10-year yield and 3% on the upside.

12:27Like 97% of the

12:30time we were in that range. Sometimes we go below 160 when the people think we're going into

12:34recession. Sometimes we go above 3%. Very rarely. It was like November of 2018. I remember because

12:41I was at a conference that day and somebody was saying 7, 8% mortgage rates in 2019. I was

12:46like,

12:46homie, we're going to have a four handle, you know, next year.

12:49Wait, is that the one with the picture where you're like, you're looking like this?

12:52Yeah, yeah. The guy was scolding me. He said, no, mortgage rates are going to 7, 8%. And I sat

12:57there

12:57and I was looking at it. I was like, you literally have no model to do this. I mean,

13:01the Fed funds rates here, man, we're not even like whatever. Oh, the old days. So, we do ranges.

13:09And again, if rates get above 6.7, we figure, okay, what happened here? Well, there's a conflict.

13:14You know, oil prices accelerated. Diesel prices got up. So, we just work off of that because

13:19something can change everything in a dive. COVID, great example. COVID, we go into COVID,

13:28guess what? I had to, COVID was such a titanic event. I changed everything on the forecast because

13:33I go, oh, this is a very, very deflationary event if it happens. And if it does, negative,

13:40negative 21 basis points on the 10-year yield, 62 on the high end. And I said, this is the

13:45range

13:45which would be, as soon as that March, March 9th, Monday morning, we are at 33 basis points on the

13:5210-year yield. But on April 7th, 2020, what happened? The 10-year yield was above 62 basis

13:57points. The St. Louis Financial Stress Index was going down. We're like, oh, the COVID-19 recovery

14:01started. We're on, right? And we just, we think it's hard to get above 1.94% next time. So,

14:07we do ranges so we could teach people, so people could do this daily because life does not stop.

14:13Right. Mortgage rates, pricing, all these things have to work together so people could understand

14:18what's driving this and where you can go. And this is why we always, Gandalf line, you know,

14:25in 2023, the Hordor line, we just, it's really hard to get below 5.75%. But hopefully, all of you

14:32that have listened for years now and have read the work, you kind of understand why it's hard to get

14:37mortgage rates under five because we have people like every day, oh, rates are going to 4%. Rates are

14:42going to 4%. Remember all those people that said, we have to cut rates because there's no way the US

14:47could afford the interest payments on the federal debt. You know, we're, oh my God, we are a broke,

14:52we're a $500 trillion economy, homie. What the hell are you talking about? Broke. We can't handle it. No,

14:59that's not how it works. But again, I'm not one of those guys. Those guys tend to have a lot

15:05of

15:05followers and people believe them, but it's not how it operates for the history of economics.

15:13That's so good. Okay. By the time this comes out, the tracker will be out. What are you looking for

15:16in the tracker this weekend? So to me, it's really, now that we're in the upper levels of mortgage

15:23rates, do we, do we see any like noticeable slowdown? Cause we really, if you take the snow data

15:31and the, um, uh, holidays out of the tracker, we never even wrote the tracker. If I wrote the

15:37tracker during the holidays, during Christmas and New Year's, you would see, you know, the, the,

15:40the notice, I like people like, oh my God, what's happening. No, it's not. It's the holidays.

15:44It's Christmas, homie. Go see Santa Claus. Go have a eggnog. Come on. Nobody's buying houses in a big

15:50form. But if you take the snow and holiday through really, it's really a stable year. Like it's

15:56stable and positive kind of year, but the snow data really did impact. But so far we haven't seen a

16:03noticeable negative impact with rates. Now we haven't got above 6.64 and headed above 7%. That's

16:10in the past few years have always made the housing data get softer. But I'm, I'm always trying to see

16:16if there's any kind of noticeable slowdown, uh, uh, with, with rates elevated here. Again, it's,

16:22it's a positive that home price growth isn't going anywhere this year. And that's, you know,

16:27helped affordability. If home prices were up like six, 7%, well, 2023 was a good example. We had

16:33really, really low levels of sales. Mortgage rates went from six to 8% that year, but prices also ended

16:39up the year it's a near 6%. And you know, that's that, that, that that's an affordability negative.

16:45That's not a positive. It's an affordability negative. Uh, so what we're seeing with prices

16:50this year is very, very, very healthy, very positive for the housing market.

16:54All right. We look forward to the tracker. Okay. One more thing on the Fed meeting. What

16:57would be the biggest surprise? Like what would, what would happen that you were like, did not see

17:01that coming? I think the biggest surprise is Warsh, you know, Warsh has to like, you know,

17:08stay somewhat, you know, kind of, uh, uh, even keel. He can't just go, we're cutting rates

17:13or anything, but I think if Warsh sounds a little bit more hawkish than what people,

17:19uh, uh, uh, uh, uh, are, are looking for, that would be a big surprise because I don't,

17:24he's not going to go in there. We, we need to cut rates. We need to do this. We need

17:27to

17:27help the president. I don't think he's going to do that. But if Warsh sounded more hawkish

17:31and agreed with the Beth hammocks, the Lori Logans, the Austin Goolsby's, the, the Neil

17:37Kashkari's, that would be a surprise. And this is, you know, things we have to see the bond

17:41market. How does the bond market react to everything? We've been living off of this

17:45conflict for so long and Powell, you know, on the verge of leaving that now we've got

17:51to see how the bond market reacts to a Kevin Warsh Q and A's, you know, remember how many

17:55times we, like we, we go, we go in, uh, uh, if Powell says one crazy thing here, the things

18:01are going to, you know, so we get to see how this works with, uh, uh, Kevin Warsh. It's

18:06going to be a, he's going to be here for a while. So, uh, uh, it, it'll be good to

18:11see

18:11the market reaction toward him, toward his, toward his statements. And does he actually

18:15say we're killing the dots? No more forward guidance. I don't want fed governors speaking

18:20at speeches anymore about policy. You know, stuff like that will be like, you know, a big

18:26surprise if it happens in an aggressive fashion.

18:29Boy, it's going to be such an interesting week. Logan Motoshami once again. Oh, well,

18:34thanks for keeping us up to date and we will talk again soon.

18:37Pleasure. And hopefully by Monday morning, we just have like, okay, let's get ready for the

18:41Fed and not have, you know, this conflict.

18:44Wouldn't that be nice? I don't know though. A Friday, you know what happens Friday night,

18:48Saturday. I know, but it's just, they can't, it can't go on forever. Right. It just can't

18:52go on forever. And just like, you know, let's just move on.

18:56Let's move on. All right. Thanks, Logan.

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