July rate hike in play if inflation is hot this week

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about mortgage rates amid inflation week and an escalation in Iran.   Related to this episode:   Can mortgage rates survive hawkish Fed talk during inflation week?  https://www.housingwire.com/articles/10-year-yield-inflation-week/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠  https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  More info about HousingWire  https://lnk.bio/housingwire   The Top 5:   Trump didn’t sign it, but the 21st Century ROAD to Housing Act is now law  https://www.housingwire.com/articles/21st-century-road-to-housing-act-becomes-law-trump/  JMG brings $5.9B brokerage platform to Keller Williams  https://www.housingwire.com/articles/jmg-brings-5-9b-teamerage-platform-to-keller-williams/  RealTrends Verified City Rankings reveal where top agents and teams are building scale  https://www.housingwire.com/articles/realtrends-verified-city-rankings/  New policy impact may ignite a manufactured housing blue-sky era  https://www.housingwire.com/articles/new-policy-impact-may-ignite-a-manufactured-housing-blue-sky-era/  Data centers emerge as real estate’s newest pricing wildcard  https://www.housingwire.com/articles/data-centers-emerge-as-real-estates-newest-pricing-wildcard/   Want more from Sarah? Don’t forget to subscribe!  https://www.housingwire.com/subscribe/   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 monoshami to talk about inflation and

00:16mortgage rates first here's the wrap-up of the top five trending stories on housingwire.com

00:21leading the list is the passage of the road to housing act followed by jmg brings 5.9

00:28billion dollar brokerage platform to keller williams that's a huge deal next is our real

00:33trends verified city rankings and a really interesting one new policy impact may ignite a

00:38manufactured housing blue sky era finally our coverage of data centers emerge as real estate's

00:44newest pricing wild card okay we are ready to get started logan welcome back to the podcast it is

00:50wonderful to be here and the hawks are definitely in control it's inflation week we're shooting

00:59missiles we're guardian of the strait of hormuz all these things are not good in this uh current

01:07environment and when this podcast comes out and inflation will come out and we wrote the article

01:12yesterday about like what to look for but we're also going to have fed for fed uh uh people speak

01:19uh today and also christopher waller the dove is becoming a super hawk so uh it'll be a very

01:26interesting week to see how this settles out by the end of the week okay let's talk about uh waller's

01:33statements because they were pretty they were pretty out there so let's start with that because we last

01:38week we talked about what um beth hammock had said we talked about uh other people what is waller saying

01:44to to me waller kind of wants to be the ringleader now of where he was a ringleader of being

01:51dovish last

01:52year he wants rate hikes uh if core inflation now you know when we wrote the article you know we

02:00talked

02:00about another dove uh um uh john williams of the new york fed and he basically says hikes are on

02:08the

02:08table if inflation core inflation see they're talking about core because now oil prices are down

02:14they don't want people to think that they're going to go dovish right remember the fed is

02:19the fed is almost unanimously trying to move the curve higher uh and get more people to think about

02:27rate hikes but waller basically uh said today hikes are on the table in july

02:36in a few weeks if uh if inflation is worse so you know it's one of these things to where

02:44it might be really confusing to people because so many people saw the fed talk about the oil shock

02:51and the conflict and it just not even part of their conversation now and uh of course the 10-year

02:59yield as we speak is 461 today and uh uh this shift is becoming a little bit more unanimous and

03:07one of one of the things we talked about before is that to keep rates under seven you can't have

03:13all

03:14the feds get hawkish and talking about maybe getting all those uh rate cuts that were last year off the

03:21table so inflation week is really really critical but then on top of that the conflict is taking another

03:27stage uh as well so not the start you want to see uh uh this week i you know i

03:36think we're you've

03:38talked about how you know if the conflict goes into this area that could be bad if it's still going

03:42on

03:42but it feels like a lot of the effects of the conflict continuing are just you know that they're

03:48not it's not hitting the 10-year yield like like it could it's not hitting even oil prices aren't going

03:54up

03:54right i i i would say this i was 100 wrong on my 10-year yield forecast in terms of

04:01460

04:02we would not be here without the conflict i 100 believe in this now because whenever there's a

04:09conflict happening the 10-year yield pushes itself higher now okay this is after oil prices have come

04:16down so to me the fed got very hawkish and they use the iranian conflict as a reinforcement

04:24to the marketplace but the marketplace is really really waiting on their kind of talking points

04:30and this is why we like to we listed everyone's talking points the last few weeks and they're all

04:36kind of hawkish and then when waller came out today and basically says july might be a rate hike

04:43and that was not on anyone's uh kind of radar so uh the conflict is driving yields even higher

04:52because if you have this conflict keep on going on and if oil prices do raise it just re-emphasizes

05:00the fed's uh notion that uh they have to fight inflation by raising rates and uh to me it looks

05:08like they really want to take all the rate cuts that they did last year back uh even waller was

05:14pushing

05:15back on the notion that the last jobs report was was soft and then people say well misestimates you had

05:22negative revisions but this is why i always tell people their break-even numbers are different

05:27that if any jobs report is over 33 000 they're like this is good this is fine right the unemployment

05:33rate

05:34is low so it it is a very auspicious start to the week but we just went into monday with

05:41more conflict

05:42news blockade charging tolls and then the one loan dove of last year has become very hawkish and by the

05:51time this podcast is out we'll see where the inflation data is and how the 10-year reacts but we

05:57want to

05:57focus on core inflation because some people might see over the next few months headline inflation coming

06:03down and they don't care they're not putting any weight on oil prices being lower did he outline

06:11what exactly tomorrow in tomorrow's uh inflation report would signal this you know that fed rate

06:18hike in july like is there a level we should look he's he wants a rate hike to me christopher

06:24waller michelle not michelle but beth hammock neil kashkar they all want rate hikes uh they want to get

06:30the rate hike cycle going on as soon as possible as long as these core prints now i'm i'm trying

06:37to

06:37get people to focus on the month to month not the headline the headline data might on a year-over

06:44-year

06:44basis might look better but these month-to-month core prints now are the most important thing for

06:50rates uh so you have to ignore the headlines you're all going to read uh tomorrow but look at how

06:57the

06:57month-to-month and 0.2 percent and under is fine but anything like 0.3 0.4 0.5

07:05these are no longer

07:06tolerable but even dovish people on the fed anymore so month-to-month data right now over year over year

07:13forget about headline it's all about the core action right now do you agree with that do you think that's

07:19rational reasonable given where we are i think i think they do not want to mess with this ai

07:25and tariff inflation with the possible conflict still going on and this is the federal reserve

07:32does not do just one rate hike they do multiple rate hikes and if they don't see inflation data getting

07:39better on the core side this is all of them unanimously saying we need rate hikes so core

07:49inflation now month-to-month is the main thing and you got to get all three of those rate cuts

07:55back

07:55that it had last year back up higher and then they would feel much better about the marketplace

08:01out there so now if the core inflation is tame and they can't use oil inflation anymore that would be

08:08a

08:08different equation but you don't have this unanimous hawk push uh uh even the doves saying anything

08:16above 0.2 percent month-to-month uh we might need to do rate hikes so there's nothing there's no

08:22doves

08:22left into this so this is why this inflation week is is important and i know it's confusing to so

08:30many

08:30because so many people just thought well oil prices are down well rates should go down that's not how it

08:35works they were shifting policy because the labor market got better and then the core inflation

08:40data is taken up so he listed tariff inflation ai inflation uh and these numbers are coming in hotter

08:47and hotter this is not kind of noise anymore this is a signal i think i think one of the

08:52very confusing

08:53things about this is like you said they had they had kind of pegged inflation to oil prices and now

08:59that

08:59oil prices have come down it's like oh no that's not what we're talking about anymore

09:03yes that's like a bait and switch that's that's kind of the i i i i think about this because

09:09the

09:10bond market is really moving off of oil prices so if you guys look at the 10-year yield how

09:14we started

09:14the year we really didn't break about 431 until the conflict got worse and worse and worse last week

09:20the conf we were shooting missiles during the market hours during the week so 10-year yield rose up

09:26now we wake up monday morning the 10-year yield rose because the conflict is still and then on top

09:32of

09:32that you know uh um waller made those comments so to me the bond market is basically saying there's

09:39no you know there there's no rate cuts but the the odds of them not hiking at all is getting

09:46worse

09:47and worse so this is why this inflation a week is is critical because there's no more uh i mean

09:53there's another inflation report toward the end of the year end of the month but you do have the fed

09:57meeting coming in july so it's so it's going to be a very very live tuesday uh because you're going

10:03to

10:03have a ton of fed governors who might not sound dovish at all who might sound soccer uh hawkish and

10:11then you got the inflation report and you have a conflict there's way too many things here uh happening

10:17at once for rates to go lower right you have way too many things that are designed to get rates

10:23higher

10:23working together now in inflation week anything worse can do in this environment absolutely not

10:30they hate his guts too by the way they i'm telling you the federal reserve members are so sick of

10:36like

10:36they're they're taking their voice away they're doing this they're this this conflict this going

10:43after the federal reserve members trying to you know peg them for stuff and it is it is you could

10:49just almost sense a divide within the federal reserve now that this got personal right you know

10:55this is a trying to a personal takeover out there so a lot is priced in right now like the

11:0210-year

11:03yield is pricing in a lot of stuff so for me i just want to see does the bond market

11:09just kind of

11:10overreact now to the upside like tomorrow could be a day where if the inflation is calm okay it's calm

11:16you know uh not a big deal but what if we have another hot core print even though headline is

11:23down and all four of those fed governors or presidents are all talking and they all sound

11:29hawkish that's not the right environment for this because the conflict is not letting the bond market

11:35say okay i don't have to worry about this anymore so uh uh just too many things there's too many

11:41things

11:42between the tariffs and the conflict and the hawkish fed for the 10-year yield to act like

11:47what normal people are used to lower oil prices usually means you know uh um bond yields lower but

11:53you know at 74 or 75 we've had that trading level range before with a 10-year yield uh not

12:00too much

12:01lower than it uh currently so very fascinating week because to me it's like the best you could hope for

12:07is

12:08no rate cuts you know this year and then you have multiple kind of people talk about rate hike so

12:13the conflict within the federal reserve is is really happening it was very interesting to see

12:18how the markets reacted to this today okay so say we get a hot inflation report tomorrow

12:24we get a fed rate hike um and funds rate hike uh end of july what does that mean for

12:30mortgage rates

12:31how much is already priced in how high do you think they'd go so when we talked about the base

12:36they said when the conflict is over the base right now should be six and a half to 6.75

12:43because fed policy has gotten restrictive during the conflict which is really rare but it did it did

12:48happen in the first six months of this year we went from two to three rate cuts to possibly two

12:52to

12:52three rate hikes so i always say that the worst case scenario for this year is like 0.375 to

13:000.43 so you're basically looking just a tad over seven percent out there now this is materially

13:07different because the housing market has held up good because for the most part rates have been under

13:126.64 the entire year so that's the first time this has happened in 2022 so we're gonna get a

13:17lot of

13:18tests here but but waller being as hawkish as he is it's basically kind of telling the marketplace

13:25hey listen we're not going to sit and wait for inflation to really take off and then all of a

13:30sudden start doing multiple rate hikes and and stuff so it is it's one of these things where you know

13:37the tariff inflation is a one-off but the ai inflation is kicking in and then the con we have

13:43to get rid of

13:44this conflict if you really you have to get this out of this equation because the bond market just does

13:50not trust anything as this conflict gets worse and worse this is with oil prices at 74 think about

13:57this oil prices are down so much from the last time we were above 460 uh and it just doesn't

14:05matter

14:05because 65 to 75 percent of where the 10-year yield and mortgage rates range is fed policy and they

14:11were

14:11getting hawkish and they are letting it be known so it is it is an interesting who it is an

14:19interesting

14:19fight in that federal reserve to get voices heard to get people knowing out there and uh kevin warsh

14:25can't do a damn thing if he's got most of the governor's voting members as hawks out there that's not

14:33going to work uh even if he wanted to not raise rates if there's more people i don't think he

14:39has the

14:39ability to kind of get them to uh uh not not high grades but just remember christopher waller is only

14:47one person right but beth hammock neil kashkari austin goolsby all there's a there's so many hawks now

14:54that it's just it gets to be more of a toss-up a lot of people thought the 10-year

14:59yield should be higher

15:00today but i mean so much is already priced in right now as we talk i mean you know over

15:07seven

15:07does not excite me in any way nor would it be exciting for anyone in our industry right i mean

15:12that's it's just not great we know that that that has an effect on demand anytime we get over seven

15:17whenever we break above 6.64 we typically get above seven during that time frame the housing data slows

15:25down now i think the last time i checked we're 6.72 this is after today's uh uh pricing so

15:33we're

15:33still in that base range but to me it's like i looked at this year as if rates just stay

15:39six and

15:39a quarter and under you could get 237 000 more homes most likely would have probably had just a little

15:44bit more than that if that was the case but now you're you're pressing into a level that i've not

15:50seen demand hold up well compared to what it was before so we'll see well it is will be really

15:56interesting but you have so many hawks that are loud hawks these are not quiet hawks these are loud

16:04loud hawks so um and the bond market simply does not like the conflict still being around even though

16:12oil prices are at 74 75 they just react very negatively uh to these to these events like

16:20they did last week and so far so far this week uh there was a negative connotation to it

16:26i think it's now hard to to see a real clean end to this conflict right i mean a month

16:33ago uh what

16:34before july 4th we're like okay he's wrapping it up we're gonna we're gonna be able to do this

16:38and now it's just gotten so messy to your to your point i mean now we're we're we're the guardians

16:45of the strait of hormuz um there's so many it just feels like it's sort of uh spiraled out of

16:50control

16:50you're gonna have to you're gonna have to force the iranians to do a deal and i think the the

16:55white

16:56house's game plan is to blockade make them not have money damage more of their stuff if they shoot

17:03and that's the way to get them onto the table because they're just going to string this out you know

17:08again we are getting closer to midterms right you know the closer we get to midterms the iranians

17:15are probably okay okay let's just let's just get this up but they have also you know their own

17:22issues to deal with as well and financially hits them and again every time we shoot 100 missiles

17:28damages things those things have to be repaired and it costs money and you know so

17:34uh it's just what we have to deal with but uh how the bond market reacted last week and this

17:40early

17:41monday before waller even said anything uh really makes you makes you believe the premise that the

17:47conflict is really that thing that just pushed and every fed person just jumped on that and stayed

17:53hawkish and even with the oil prices now they don't care so you got to focus on the core month

17:59-to-month

17:59data man okay fingers crossed maybe there's a chance that the core data tomorrow isn't bad

18:07or isn't too hot what do you think what are the chances there's a there's a group of people that

18:11say the inflation is is already peaked and everything i just i think they're focusing too

18:17much on headline inflation now the federal reserve's own premise was that the tariff inflation will wind

18:22out but all all i know is a lot of them are talking about ai inflation now more than ever

18:27they're always mentioning the data centers electricity and ai inflation so that's something

18:33that's very difficult for the federal reserve to do anything about like what like what can you do

18:39uh there's so much money being spent uh for these ai data centers and getting this out here that it's

18:45not something the federal reserve but they're bringing that up too so again the fed went hawkish when

18:51the labor data got better but they need to see better inflation data soon or rate hikes the three

18:58rate cuts last year would be rate hikes i don't know there's nothing else more than that and supposedly

19:02this is going to be stringed out over the next uh uh six to twelve months but in any case

19:08this is where

19:10we are and the i think the bond market is really acting accordingly to the conflict being here still

19:15and a lot of fed hawk so i i i can't wait for tuesday to see how this all operates

19:21because we have

19:23so many fed people talking and we have cpi inflation then we have the ppi inflation data and we'll take

19:28it

19:28there and just remember core cpi is there is a rent factor into it where the pce inflation data later

19:36in the month does not have that equation so uh your your best hope is that there's the shelter

19:42disinflation keeps core month to month at 0.2 percent and we'll just take it from there but

19:47very very interesting time sarah uh to go from where we were january and february to where we are

19:56now in july and having the market uh readjust there and then have this conflict shoot up oil prices and

20:03have shoot oil prices down and we're yearly highs and mortgage rates and bond yields basically

20:10i think you know we talked this weekend and um i don't i think we are at the peak of

20:1624 this

20:16weekend because we had the conflict going on then we had lindsey graham um you know pass away suddenly

20:22we have mitch mcconnell sort of in in you know there's a lot of things going on right now that

20:27are

20:27odd and and just feel very much like i'm never going to mention the show 24 ever you are not

20:33allowed

20:33to mention it ever again it was like jumanji you opened that you rolled the dice for us here not

20:38a good

20:38call man this i know you just these weekend headlines so so but again we'll we'll see how

20:45this goes but just remember a lot of things are already priced into the markets uh and another

20:52soft labor report uh probably uh loosens the fed mindset a little bit more but interesting times

21:00wheeler interesting times i mean i can't imagine what a normal person is thinking because you know for

21:05me i mean it's it's it's fascinating exciting but it's also complicated you know this is why

21:11all these articles we wrote in the last six weeks or going back to may it's like trying to get

21:17people

21:17to realize the fed runs this show and they are being hawkish don't put your weight on oil prices

21:23declining as the thing rates go lower and don't think kevin warsh can just you unilaterally change

21:30everything but wow exciting times exciting times well thank you so much for keeping us up to date

21:36and listeners we are writing about this every day so uh check over on housingwire.com

21:42logan thank you so much we will talk again soon pleasure wheeler

21:47you

21:50you

21:51you

21:53you

21:54you

21:55you

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