What’s driving rates: the Fed, jobs data or the Iran conflict?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about what’s driving rates right now. Is it the Fed, jobs data or the Iran conflict?   Related to this episode:   Mortgage rates over time   HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠   HousingWire AI Summit – August 11   HousingWire Mortgage Banking Summit – October 1   More info about HousingWire   Top 5 Trending:   UWM lines up record $2.05B Ishbia–Oaktree capital raise as it posts Q2 loss   Housing Market Spotlight: What the national median price isn’t telling you   What Better’s CEO swap means for its future   Zillow says its ‘Housing Super App’ strategy is working   Exclusive: Envoy Mortgage to acquire MasonMac distributed retail assets   Want more from Sarah? Don’t forget to 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. I'm joined today by my podcast partner, lead analyst Logan Motoshami

00:15to talk about what's driving rates right now. Is it the Fed? Is it the jobs data? Or is it

00:20the conflict? Before we dive in here, the top five trending stories on housingwire.com.

00:25First is UWM lines up record $2.05 billion Ishbia Oak Tree capital raise as it posts Q2 loss,

00:34followed by our housing market spotlight, what the national median price isn't telling you.

00:39Then we have what better CEO swap means for its future, and Zillow says its housing super

00:46app strategy is working. Finally, we have our exclusive coverage, Envoy Mortgage to acquire

00:50Mason Mack distributed retail assets. Also, it's earnings season, so we have tons of other

00:55coverage of second quarter earnings for mortgage, real estate, and home building companies.

00:59Okay, Logan, welcome back to the podcast.

01:02It's Jobs Friday. You know, it's been a very interesting week because we're both, you and

01:08I are here in Orlando, Florida, speaking at VAMP. And, you know, we always try to give people

01:16and understanding how mortgage rates and the 10-year yield and the spreads work and everything.

01:20And today is another day where, you know, the conflict news, it's Fed chair war secretly talking

01:29to Trump and, you know, it's Jobs. You know, so there's so many things going on. And the reason

01:34it matters now is because mortgage rates are above 6.64%. That's kind of been our line in the sand

01:40for

01:40years now. And we've seen the growth rate in housing slow down because of it. Purchase application

01:46data was down year over year 3%. So, you know, so what's driving this? Like, how does it get worse?

01:54How does it get better? You know, we're going to get a good test case with how the bond market

01:59will

01:59react to Jobs Friday. And just kind of remember the last, you know, some of the data lines, job

02:06openings and ADP are coming in just a little bit underestimates. And I always try to tell people,

02:11the Fed doesn't, you know, if we're creating 33,000 more jobs, it's okay. So today is like,

02:16what is more important at this stage? Because we're just getting headlines after headlines after

02:21headlines after headlines. And it's moving bond yields a little bit more aggressively than what

02:28we're accustomed to. Okay, well, let's start with the jobs data. Of course, we don't know what that is

02:32yet, because we're recording this before that comes out. But how much of this do you think is

02:36going to be jobs driven? I mean, I personally don't think the 10 year yield or mortgage rates

02:41would have gone up to where they are today without the labor data improving. And that's what we saw last

02:46year. Last year, again, authentically, it's 100% legit. It was the lowest job growth in the 21st

02:52century outside of recession. So only two sectors were holding up the labor market from being

03:00negative. I'm always going to disproportionately put the jobs report over a lot of things just

03:07because it's part of the Fed's dual mandate. And the bond market tends to react a little bit more

03:12aggressively to labor data. It tends to overdo it to the up or downside as well. You know, 2024 is

03:19a

03:19good example. So I always run off that if the labor market was getting weaker, bond traders have

03:26will push yields down. And guess what? 2023, 2024, 2025, even in 2026, we got under 4%, not because of

03:35Fed policy, not because inflation was at 2%. It's because of the labor data. So I will always outweigh

03:42that first. So it'll be interesting to see because we're up here on the 10-year yield. We're closer to

03:50yearly

03:50highs. How does the bond market react if it's a really positive report or if it's a softer report? And

03:57again,

03:58I always stress wage growth is key for the Federal Reserve. Non-farm payroll wage growth last month was 3

04:04.5%. That

04:06to the Fed is still too much. You know, I think if you get under 3%, it's a whole different

04:10ballgame. So

04:11for me, labor is always first just because that's what we've also seen, how the 10-year yield reacts,

04:19no matter what the Federal Reserve is trying to say or inflation. Bond traders think differently

04:25out here. I think they've become a little bit better and not overreacting to negative data. But we saw

04:30again in early this year, AI, disinflation, private credit. So sometimes they get a little bit too

04:38gung-ho onto the downside. Let's talk about the Fed a little bit because it has been a very

04:44interesting week, right? Especially when it comes to Kevin Warsh and his communication with the White

04:49House, what's going on there kind of catches up. If the stories are true, apparently Kevin Warsh is

04:55talking to President Trump in private often where, you know, it's not, you're not supposed to kind of

05:03do that. If the president wants to talk to you about something, you know, you set up an appointment and

05:07you

05:08let the public know that the president is talking to you. Now, it's not shocking. I mean, I could

05:13totally see Trump calling Warsh, hey, what's going on? What do we do? You know, what do we think?

05:19But again, it just runs into the circle that Warsh is a Trump plant. And, you know, President Trump

05:28tried to actively take over the Federal Reserve by firing people and putting his own people in.

05:33So it's just, I think it just reinforces how the other Federal Reserve members will look at Warsh

05:40in that regard. So it's not shocking. Again, this is just, you know, this is something that will probably

05:49get asked in the next meeting because Kevin Warsh technically is supposed to, like, disclose, well, I

05:56talked to the president. Well, if you're talking in private, you know. So I think with Kevin, it's just

06:05what his style of what he wants to do with the Federal Reserve would probably operate better if

06:12it wasn't actually President Trump. Because President Trump is chaos in this regard. And

06:18these back and forth Iran negotiations, is it happening? Is it not happening? It makes his

06:25strategy of not giving guidance a little bit more precarious out there. And again, the market is

06:31going off other Federal Reserve. It is Beth Hammock's Federal Reserve. So we got another layer

06:37of news. And I know Scott Bessett went after Nick Tamaros of the Wall Street Journal, you know, Fed

06:43gossip. But guys, there is a trend here that is not normal with the president and how he operates with

06:49the Federal Reserve. So it's much more aggressive than in the past. So I think it'll be more interesting

06:57to me is that in the next Fed meeting, do they ask him, do you actually talk to the president,

07:03you know, out there? And I'm sure Congress will have a testimony at some point and ask him that

07:08question under oath. But it just adds another layer of intricacies or, you know, a little mystery

07:18around the Federal Reserve and Trump and what the goal is. But also the talk is that, you know,

07:23he's open to a rate hike if the inflation data is hotter. I just, I don't believe there's any time

07:29in history that the Fed chairman doesn't want to hike rates and then the board, there's more members

07:34for it. So that just adds another layer into this week. And Neil Kashkari came out on CNBC and talked

07:44about, you know, he wants to raise rates slowly, not to slow the economy, to bring inflation down.

07:48Well, you kind of already see some of the data lines slow down just a little bit. And it's just

07:53a lot of back and forth right now at this point until you get more clarity on the data. But

07:58you

07:58just, you need the conflict to end fully for this to actually play itself up.

08:06It is ironic to me because we talked about how, you know, lowering the interest rates is one of

08:12Trump's three things that he wanted, right, when he came into office in 2025. We've been talking

08:17about it since then. And you just gave a talk at the, we're at FAMP, right, Florida Association of

08:25Mortgage Professionals. And you were talking about like, here's where we are, here's where we would

08:28be if we didn't have the conflict. So it's interesting to me that like, Trump's priority

08:33is lower rates, but the conflict, which is his choice, is driving those rates higher. So, you know,

08:44what's interesting with the conflict is that it's not like oil prices are 100, right?

08:51Oil prices, last time I checked, 77, 78. It adds a layer of uncertainty in a time where the Federal

09:01Reserve Chairman is saying, we don't want to talk. So that's a problem, right? Because the Federal

09:09Reserve Governors and Presidents are saying the conflict is a problem, right? They made it a hawkish

09:16theme for there. And they said, we, you know, you don't usually chase a supply shock, but inflation

09:22is above target. And we're concerned that, you know, if the conflict and oil prices stay elevated,

09:28you know, inflation gets more entrenched into the data. So if there's too much noise, Sarah,

09:34that's the problem. There's too much noise. There's too many variables that, you know,

09:40a normal economy shouldn't deal with, but we're dealing with them all at once again.

09:45So this is why it'll be interesting. Now we have the jobs, we have Kevin Walsh,

09:48we have inflation, we have the conflict. They're all kind of, and we're at a level to where

09:53rates near 6%, not a problem, no equivocation. But I just haven't seen the data

10:01behave the same when rates get above 6.6%. Now it's, it's much different now than it was,

10:07let's say a few years ago, because the spreads are better, but man, it's, it gets more complicated

10:14for the consumer when they see all this stuff. Like I have no life, this is all I do, right?

10:21So I'm on

10:21it 24 seven, but I can imagine like, you know, you're this story, that story, this story, you know,

10:26what's going on. So it is, it is, uh, um, you know, quiet is good. Silence is a good thing.

10:36You know, uh, sometimes, uh, having less drama would benefit everyone's agenda. That's what I

10:43would say. Uh, uh, so you don't have to be, even, even silent from Walsh, even. No, I mean,

10:49uh, for the president, you know, uh, um, but if we're in a constant 24 seven social media tweet,

10:57worse, this, all this stuff, it's, it's, it's too much for the market to, you know, think that it's,

11:04this is the time in history where Kevin Walsh should be quiet and not give forward guidance.

11:09And the market doesn't care. This is Beth Hammock's, Lori Logan's Federal Reserve.

11:14That's why I really want to see how the bond market reacts to the jobs data. Cause you know,

11:19we're, we're no longer at 4%. Again, the only time in history, in the last few years that we get

11:25below 4% is an economic growth scare. It was not policy related, right? 2023, the Gandalf line that

11:32we had to move, take the Hordor line in 2024, 2025 and 2026. So we get there, we never break

11:39through

11:39it because fed policy doesn't allow you, but you know, 2024, the bond market thought the labor

11:46market was getting, you know, they, their inflation was not a 2% yet. So I just think it's, they're

11:53getting mortgage rates just to settle down and not be so violent is, is a good thing. But we just

11:59have,

11:59we have an environment where all these variables just don't or aren't working together. And we deal

12:05with this year in and year out every year. It's, it's the same thing. There's always something that

12:10drives rates lower. And then there's something that drives rates right back up without the normal

12:15slow flow of where the mortgage rates would go over the 10 year yield. Absolutely not. So let's

12:21talk about the jobs data. What is expected for it to come out? What would actually move one way or

12:26the

12:26other? If like, how big of a miss does it have to be? I, I, I really want to see

12:31how wage growth

12:32is looking right. You know, cause a lot of the data actually have been softer. ADP came in softer,

12:39job openings came in softer. So with, with the, with the jobs report, whether it's above on par or,

12:46or a slight miss, we, I mean, majority of the time it never hits online, but it's really how the

12:53bond

12:54market will react to the internals of this data. If wage growth ticks down a little bit lower,

13:00you know, that's a little bit better news for mortgage rates, but if the, even if the jobs

13:04number comes in line and wage growth starts to pick up, there's where I think there's a problem

13:10for everyone because the federal reserve does not like wage growth picking up. Uh, uh, and if that

13:18happens, it just means inflation gets entrenched. So I'm actually looking at the wage growth number

13:23and seeing how the bond market reacts to, even if the number is in line with estimates, because if wage

13:28growth starts to go, then it just, the labor market isn't as tight as maybe some federal reserve

13:34people are thinking. Okay. So let's, let's get to it. What's the best case scenario for rates? What's

13:39the worst case scenario for rates? I mean, the best case scenario is always the same. If, if the jobs

13:44number misses estimates and the revisions are negative and wage growth is going lower, that's,

13:51that helps rates and vice versa. If jobs beats, we had a really, really, really funky, uh, prime age

14:01labor force print last, which is extremely abnormal. So that'll adjust itself. But if the jobs number

14:07beats and wage growth is picking up and the unemployment rate is low or even goes lower, I think

14:14those are things that will reinforce the Beth hammocks. Remember Beth hammock runs the federal

14:19reserve. The markets care about her. Lori Logan runs the federal reserve. They care about her. Neil

14:25Kashkari and Austin goes, these people. Uh, so, uh, to me, they would feel more hardened about their

14:33hawkish stance. If the unemployment rate falls down and wage growth picks up, you know, cause you know,

14:38again, the federal reserve has said many times to everybody, we don't need big jobs reports anymore

14:44because of the labor force growth. So, uh, uh, I think the, the, what would make their case even

14:51better for rate hikes. I mean, you have people right now talking about three rate hikes still in 2026.

14:58If inflation stays firm and the labor data is good, you know, it's, it, it, all they need is four

15:04and more fed governors voters. They just need four more. They could get them in. And I think it's,

15:10it's hard for Warsh coming in to say, Hey, listen, I don't want to rate hike and everyone else votes

15:17against them. It just not only the bad optics is that this is, this was a bad kind of a

15:23relationship

15:24to start off with. Uh, uh, because Kevin has disrespected the federal reserve for eight years

15:29on these little tour rants. And now he's coming in and saying, we're going to do everything different.

15:36So labor over inflation in that sense, labor data gets better. Uh, uh, that that'll be negative

15:42for rates. But again, we are very, very priced right now. Uh, it takes, to me, it takes more

15:47worse news from the conflict to go up much higher. Whenever we see conflict, better news, yields go

15:53down. Whenever we see bad news, yields go up more aggressively. So labor data can reinforce the fed fed's,

16:00uh, hawkish stance, but boy, if you could just get this conflict over with, you could just work back

16:07on the economic sides. It's just, it's hard to three hours, we might get something good. And then

16:13two hours later, it's something bad. And yeah, I mean, you know, and you have a lot of shady

16:17characters on social media posting stuff that isn't true and the markets react. So we, again, it's,

16:24we want little house in the prairie. We want a calm, you know, quiet economy that, you know,

16:31Can we do a recall? Can we, can we do a no, then pull back 24. We want, we want

16:35to do over,

16:36you know, you know, at the vamp event today, I said, I, people blame me because I was like,

16:42you know, I said, you know, just for some reason, I just think 2026 is going to be like

16:46the show 24. I will never say that again. It's my bad people out there. And, and, and I, I

16:53don't,

16:53I don't know if you remember that one joke I said, I said, you know, what, what could be really

16:57like

16:57the one thing that can be really bad for rates. If we start a war in the middle East, you

17:02know,

17:02I said, said that like a week before the conflict happened, but it's like midterms here, that won't

17:07happen. I remember specifically you were like, but it's midterm. So we don't need to worry about this,

17:13this, because he's going to be mindful of this. It was like all of that went out.

17:16Oh, it's just unconventional, right? It's unconventional, but you know, like for example,

17:20the 10 year yield was up again today, five, six basis points, mortgage pricing was only up 0.2.

17:25So again, the spreads are, spreads are doing so much of the thing, but you know, the spreads could

17:29only protect you for so long, right? You know, if inflation picks up, wage growth picks up, the

17:34economy picks up, you know, the fed is just going to go hawkish and here we go again. But, but

17:39man,

17:39you can, you can, you can clear out a lot of excess with a conflict. All right. Well,

17:45Logan, thank you so much for getting us up to speed. We are all ready now for a jobs Friday.

17:50Thank you so much. Pleasure.

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