The new Fed rate-hike cycle has begun

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the Fed rate hike and what it means for mortgage rates for the rest of this year.  Related to this episode:  Is a new Fed rate-hike cycle good for mortgage rates? https://www.housingwire.com/articles/is-a-new-fed-rate-hike-cycle-good-for-mortgage-rates/  HousingWire | YouTube⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ https://www.youtube.com/channel/UCXDD_3y3LvU60vac7eki-6Q  Buy one, get one FREE tickets to the Mortgage Banking Summit on October 1st https://events.housingwire.com/mortgage-banking-summit-2026  More info about HousingWire https://lnk.bio/housingwire  Top 5 Trending:  Fed hikes rates, with analysts seeing more tightening ahead https://www.housingwire.com/articles/fed-rate-hike-inflation-geopolitics-housing-impact/  Leah Price moves on from Better, will join UWM’s tech team https://www.housingwire.com/articles/leah-price-better-uwm-technology/  Is a new Fed rate-hike cycle good for mortgage rates? https://www.housingwire.com/articles/is-a-new-fed-rate-hike-cycle-good-for-mortgage-rates/  Pulte pushes mortgage insurance cuts as FHFA opens door to servicer outreach https://www.housingwire.com/articles/fhfa-fannie-mae-freddie-mac-servicer-outreach-pmi-cancellation/  State AGs urged to probe Zillow, pocket listings, referral fees https://www.housingwire.com/articles/ags-probe-zillow-referral-fees/  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. Today, I'm joined by lead analyst Logan Modashami to talk about the Fed

00:16rate hike and what Fed Chair Kevin Warsh said in his remarks after the meeting. Before we dive in,

00:21here are the top five trending articles on HousingWire.com. First is Fed hikes rates with

00:27analysts seeing more tightening ahead. Followed by Leah Price moves on from better will join UWM's

00:33tech team. Then we have Logan's article is a new Fed rate hike cycle good for mortgage rates.

00:39And Pulte pushes mortgage insurance cuts as FHFA opens door to servicer outreach. Finally,

00:46we have state AGs urge to probe Zillow pocket listings and referral fees. Okay, we're ready

00:53to go. Logan, welcome back to the podcast. It's good to be here. The official rate hike cycle has

01:00begun today. And anyone who thought that they weren't going to do it or even if they're one and

01:07done, all that goes away. And I always like, you know, over the last few days, I saw like mortgage

01:14people and other people just make videos that oh, a rate hike will be good. And in 2024, when they

01:21cut

01:21rates, you know, mortgage rates went up in the 10-year. If anybody is telling you that is a thing,

01:28I would question like how many years have they followed the bond market? Because in 2024,

01:35the 10-year yield was basically pricing in a recession. It was so overbought at 362 that all

01:42you had to do is have the economy expand and the 10-year yield would have risen. This is not

01:482024

01:492024 on reverse. And I thought Kevin Walsh did a great job today explaining all the facts and

01:55variables. And I thought toward the end of the Q&A, you know, he made a firm commitment that this

02:02is,

02:02you know, the U.S. economy is growing. The 10-year yield, which was down four or five basis points

02:08throughout the whole Fed meeting announcement, everything, shot right back up to 5%. But I thought

02:13he did a good job on explaining where we are in this brand new Fed rate hike cycle.

02:20Okay. So one of the things that we wondered about was, would he vote against the other members of

02:25the Fed or would he stand with them, which could put him, you know, at odds with the president. So

02:30today, what did he do? It was a unanimous vote. He came out and talked about the independence of the

02:35Fed. What did that mean to you?

02:37I think the whole Trump-Walsh thing is overblown. Kevin Walsh is his guy, but Kevin Walsh doesn't

02:44have the numbers. Okay. So whatever game plan Trump had on trying to take over the Federal

02:49Reserve, it went away, right? Inflation was above target. The labor data got better. Everything that

02:54he wanted, he cannot push through because it's a committee. This is why he had Kevin Meyer,

02:59Stephen Meyer there. This is why he tried to fire Lisa Cook. He needed more people. He doesn't have the

03:03numbers. So that whole thing blew up. So whatever this is about Walsh and Trump, realize Kevin Walsh

03:10is Trump's boy and it's not going to be the same as Jerome Powell. So this is just the world

03:15we live

03:16in. So I don't think, I thought there's no way Kevin Walsh would not have gone with this. It would

03:23have, it would have been a kind of a three stooges event if he, if he did that. So 12

03:28and 0,

03:28very unanimous and you got, you know, markets easily priced in one more rate hike before the

03:34year's end. So let's talk about what happened at, you know, after they announced and then after his

03:40remarks on the 10 year yield. I mean, the 10 year yield just shot up a few basis points back

03:45up to

03:455% pretty much flat. Oil prices had been down the whole day. It was interesting throughout the whole

03:49day, oil prices were down. We had a, we had a really strong retail sales report. GDP for Q3 is

03:55running

03:55at 5%, but that oil trade was working, was working after the Fed announcement, everything. And then

04:00just in the last question basically, or the last few minutes of the, of the Q and a 10 year

04:08yield

04:08shot up. And this is correct. This is basically correct. And it all goes back to the start of the

04:15year that the labor market stabilizing, you know, and improving is like the front and center. The big

04:25reason why everyone got hawkish. The inflation growth rate was always above the Fed estimates, but the

04:32labor market had been getting softer in 2025. And again, a lot, I mean, at least for us, how we've

04:37talked about it, that you, the economy doesn't really work well. The first year of a trade war, it was

04:43Godzilla tariffs. We're doing government shutdowns. We're all, it was chaos last year, but now you got a

04:47little bit of stability and job growth picked up a little bit. I mean, my break evens are 78,000

04:52last three

04:53months of this. So he made sure to let everyone know that's that, that's what it is. And they

04:59brought up four week moving jobless claims. Okay. So I don't drink, but you know, I would have

05:05drink, I would have had a bourbon for that one. Uh, and the unemployment rate is low. Jobless claims

05:10are low. And I think, again, if we're still, if you're still following the old playbook that revisions,

05:16revisions, revisions is that doesn't work here. Uh, um, and I thought he did a good job of settling

05:23that. Then he talked about growth, uh, consumption and investments. Uh, that's, that's, that's key in

05:30the economy expanding. He made it clear about that. So he talked about like, why does he think the 10

05:36year yield has gone up so much labor market? Number one, he talked about all the money that's being

05:40raised by all the AI companies, uh, for CapEx that takes some demand away from treasuries.

05:46And then he said the obvious one, the geopoliticals, uh, uh, oil prices, diesel prices,

05:52everything, especially the last 35 to 40 basis point move higher really correlates with that.

06:00And here we are right now, as we speak, the 10 year yields at 5%, the stock market was selling

06:07off.

06:07Last time I saw it was the Dow was that what eight, eight, eight, 900. So it wasn't too dramatic,

06:11but it was lower. Bond yields didn't go down. Bond yields went up. The dollar went up, uh, energy

06:17prices, WTI is over a hundred. The Trinity that Trump wanted, lower oil, lower mortgage rates,

06:25uh, uh, uh, and a lower dollar has all gone away. It reversed on him. And so you can only

06:32play with the

06:33market so much and think you can get away with these things and it, and it hasn't. And I

06:37think that's, that's what they're struggling with. There's no real easy fix to this. Uh, uh, and even

06:44if there wasn't a conflict, let's say there's no Iranian conflict, mortgage rates probably would

06:49have been six and a quarter to six and a half percent. The 10 year yield probably would have

06:52been ranging between 431 to 460. And that would have looked right with the data because the only

06:57reason they really cut last year is because they saw the labor market softening. So they wanted

07:04insurance rate cuts and they want those insurance rate cuts back. So that four week moving average

07:10for the, for jobless claims, you're always talking about that as that's the key to look at. If you,

07:18if we ever want to see what they're going to do, you know, if they're ever going to lower rates,

07:22that's what you're looking at. And you're like, you know, it doesn't matter what we all think. This

07:25is one of the most important data points to the fed. And then he, he, uh, named it today.

07:30Well, not they've lowered rates with the jobless claims low. I mean, the federal reserve has done

07:36a lot of rate cuts, but for, for people who think about them actually pivoting or doing something

07:42more, the history of economic cycles in the United States of America has been very, uh, easy to read

07:49if you know where to look. And we've never had a modern day recession when jobless claims are, are,

07:56are at a low level and against the civilian labor force, it has to perk up really, uh,

08:00really above a teenager status to get up from, from that. And for me back in 2022, I said, okay,

08:07that's 323,000 on the four week moving average. We should not talk about a recession unless that

08:13happens. It is September, 2026. We had a massive rate hike cycle. They lowered the balance sheets

08:22down. Everybody who said that the U S can't take rate hikes and balance sheets reduction, everything,

08:26the economy is still expanding. GDP is running at 5%. Retail sales were good. You know, there's a lot

08:31of capital. The AI boom is putting a lot of money into the Senate. Deficit spendings are good. Balance

08:37sheets, all these things, Kevin Warsh kind of put out there for just that first rate hike, uh, to be

08:44in

08:44the play. Interesting. Okay. So he got a question specifically about the AI, uh, investments and, um,

08:52all of that. And he pretty much punted it. He, he didn't really want to talk too much about,

08:56um, the AI effect on the economy. He talked about having a task force that was going to come back

09:02with recommendations, maybe at the end of the year. What did you make of that?

09:06Well, I mean, Kevin wants to talk less. This was such a good fed press by Kevin Warsh. I'm taking

09:12my

09:12hashtag, uh, anybody, but Warsh. That was one of the best fed press events I've seen in my lifetime.

09:18That's how I wanted to go up there and shake his hand. That's how good Kevin Warsh was,

09:24right? None of this Mickey mouse stuff that used to go around with Powell and everyone else. You

09:29just boom, boom, boom, get it in. This is the data homies. Y'all got to deal with it. You

09:33know,

09:34so that, that I thought, I thought that was very good. Now the AI, when the 10 year yield got

09:39below

09:404%, I didn't agree with it because I didn't see what the labor market, but back then there was a

09:46fear

09:46of disinflation that the private credit, you don't even hear about private credit anymore.

09:51That was the big fear of 2026. Private credit was deteriorating and AI was about to take all the

09:57jobs. Homie, unemployment rate is at 4.1%. The AI taking all the jobs was something people talked

10:03about and that drove the 10 year yield. Cause we had one bad report in there. And just remember when

10:08you have very, very low break evens, you can have four to five to even six jobs report in a

10:14year,

10:14be negative and still have the unemployment rate low. So there's nothing much you can do with the

10:22massive spending these companies are doing. It is not in the feds privy to do anything like that.

10:27This is why when we wrote that article, that article we wrote there is, is, is a rate height cycle

10:33good

10:33for mortgage rates. This cycle is very unique, but this is a lot of domestic investment coming into a

10:40new sector that's doing a lot of stuff. And that has held the investment side of CapEx, which would,

10:46if it wasn't here, we'd have a whole different story, right? Construction labor. I mean, you can

10:53make it, you can make a point that rates wouldn't be as high with, with the AI spending here, but

10:57we're not residential construction looks weak. Commercial construction looks weak. We're building

11:01for Skydent, but not people. So that, that is a legit thing to talk about. But

11:07in terms of the economy, it's still pushing through, right? And they can't control so many

11:13things. And this fed rate hike is not going to do anything to the CapEx spending from these

11:18companies. Companies are so wealthy. They're pouring so much money into this thing that that's

11:23not going to save it. He just doesn't want the inflation to break out into other components,

11:29the second or third effects in there. So I thought he did a really good job. This was really,

11:33really a good Fed press event, you know? And I thought he explained it very well.

11:39Okay. So, I mean, this is a big deal. You have been hashtag anyone but Warsh for what, a year?

11:45When, when we were talking about who's going to replace Powell and you're, you felt very strongly

11:49about it, obviously. So big deal. He must've really impressed you.

11:53This, there is so much of what he said is what I would have said. That's why I'm loving it.

11:58You know,

11:59labor data got better. Consumption is good. Growth and investments are still good. But,

12:04you know, we have issues with some of the inflationary shock. Now, you got to remember,

12:09last year, the Federal Reserve said, the Federal Reserve gave an out to the White House. They said,

12:14we're, we understand that this trade war is going to have a one-time price hit. We will let it

12:19go.

12:20And you can make the case that the breadth in inflation is not really happening. This is not

12:24a breakout. Right now it's very energy and supply shock driven. But the problem with Trump's tactic

12:32is going into this war at this point with the unemployment rate low does not get him what he

12:38wants with lower rates and a lower dollar. So tactically that did not help him out, but without

12:44the labor market getting better and without growth and investment still here, we don't have this

12:49discussion. We have another discussion. So if the weakness that we had seen in 2025 continued

12:54and got even weaker, whole different conversation, but we're not there yet to have that.

13:00So one of the things that he was asked several times, like what changed between the last meeting

13:05and this, and he talked about, you know, the economy looks strong. It looks like it's gaining

13:09strength. What did you think of that? GDP is running at 5%. Domestic investment and consumption

13:14are still good. It's been the same story really for some time on that front. And again, I harp,

13:21this is again, not everyone might not agree with this. I just think a lot of the softness we saw,

13:26if you don't have manufacturing and residential construction jobs growing like we did last year

13:31and you put a trade war Godzilla tariffs into the equation, boy, the labor market is not going to work

13:37well. But some of that initial shock goes away the second year. I saw this in 2018 and 19.

13:43So when we did that podcast toward the end of last year, what like the backdrop for the economy

13:48could be good here. Now that was, that was getting the tariffs away. Trump should have just

13:53taken that victory and gone with it. You have the tax cuts coming in, you have already domestic

13:58investment, but the thing is that the labor data rebounded first and all the hawks jumped on it

14:03because they really didn't want to cut last year, right? They really just, they just felt like they

14:08were forced to because of job market. And they, they went into 2025 thinking the labor market's robust

14:13and then all these data comes in. And so, so that's, that's a whole different story here, but

14:19he's correct in that assumption. If you have a weakening economy, right? Domestic investment

14:25consumption goes lower. The domestic purchaser data, part of GDP goes lower. And then you see more

14:31aggregate layoffs as corporate profits go down. This is how cycles work. I thought he did a really,

14:36really good job of kind of explaining that to people.

14:39I want to dig in a little bit onto your, into your article about why this is not the same

14:45as

14:452024 or why the fact that we hike rates, the Fed hikes, the Fed fund rates is not going to

14:52be good for

14:52mortgage rates. So you talked a little bit about that, but can you, can you go into more detail?

14:57So when you look at the history of Fed rate hike cycles, it's never good for mortgage rates,

15:03not one time. And I, you could go back in the last, going back all the way, even to the

15:08mid eighties.

15:09But what's unique about this cycle is that in the previous cycles, we have economic weakness. We get

15:16in a recession, we cut rates, right? We cut rates, we stimulate the economy, we get out of the recession.

15:22And that's when the rate hike cycle begins. And that means rates go higher. That is valid. That's

15:27why I put that chart there. I did a second slow dance chart with the Fed funds rate and the

15:3410-year

15:34yield. This cycle is different. The Federal Reserve went on a very, very aggressive Fed funds rate

15:41move. They wanted to get at least the growth rate of the Fed funds rate above the growth rate of

15:46inflation for some times. The growth rate of inflation was hitting toward 2%. And then we started

15:52the trade war. Okay. So then, you know, you're dealing with all that drama last year. And then

15:58going into this year, some of that disinflation, you could kind of see the disinflation on some of

16:02those things. And then the conflict started, which made things complicated. So normally I would sit

16:08here and go, hey, listen, this is, none of this is good for rates. We just got out of a

16:11recession and

16:12now we're hiking rates. So mortgage rates should go. But this cycle, as you can see in the chart,

16:17the 10-year yield already made a big move, right? And we talk, we always talk about this in 2020

16:2223. Whenever the Fed is done hiking rates, you usually get a huge rally in the bond market and

16:27mortgage rates go down. The 10-year yield went from 5% all the way down to the Hodor line.

16:32That's when Hodor was created at 380 in December of 2020. And it held, right? It took the full cycle

16:39move, really. It's a very aggressive move. Here, it's much different. Here, we didn't have a recession.

16:45We tried to get the Fed funds rate down to neutral. We didn't get to neutral policy.

16:49And now because of geopolitics, the AI and the labor data, they're going to try to get back

16:57at least two of the three insurance rate cuts. And for anyone in the mortgage industry,

17:05you've got to hope it's just that. That at least is somewhat manageable. But front and center,

17:12this conflict has to end, man. Basically, they're telling you this is a problem for the bond market.

17:21This is a problem with embedded inflation, the food of all these things, diesel, everything.

17:25And then I go back to President Trump's original premise, right? The Trinity impact. The White House

17:31basically said it themselves. We believe if oil prices fall, everything will fall with it.

17:37Now, the opposite has happened. And they just don't know how long this is going to last. So

17:41you can get the 10-year yield and stuff back down to around a 460 level. But you need this

17:48conflict

17:49to end, oil to flow, diesel prices to go down, all this stuff. But really, even if there wasn't a

17:54conflict, we'd probably be ranging around 430 to 460 just because the labor market recovered.

18:00Consumption and investment are still good. That could have even been somewhat even better

18:04with no conflict. So very, very fascinating year. Very, very fascinating Fed meeting.

18:10But the point of that article is to show the history of Fed rate hike cycles. Not one and done,

18:17but a cycle. And it's never, never a good thing for mortgage rates. But this is much different than

18:23those previous because we actually never went into a recession where we cut rates and rates went so much

18:29lower. You're trying to get back the insurance rate cuts of last year. So a lot is already kind

18:34of priced in on that side. But man, geopolitics, geopolitics, Warsh kind of did emphasize that

18:42on the bond yields move. And you can see so much of the correlation after the 10-year yield got

18:47above

18:47460, after the MOU deal failed, how intangible those two, the yields and oil prices are related,

18:55especially when you do it with diesel prices as well. So you say it's a rate hike cycle. It's

19:01not a one and done. When's the next one going to come? And what's the ultimate effect on mortgage

19:06rates? So a lot has been priced in on the rate side. You probably have one more done. Again,

19:13as long as the labor market stays solid, they can run on trying to get the growth rate of inflation

19:19down. So I'm hoping, I'm hoping this is something that the president and all the staffers and everyone

19:27for midterms get it right. That something needs to, you can't keep on doing this back and forth for how

19:32long, right? You know, we don't know if the whole conflict ends after midterms, but this cannot go in

19:38its fashion if you want lower mortgage rates. But there's limits to where you could go with

19:45mortgages. Even if there were no tariffs, even if there were no conflict, there's no history we have

19:51with mortgage rates getting below 5.75 with the Fed funds rate at neutral. We're no longer talking

19:56about rate cuts. We're talking about rate hikes. So we can be up here as long as the economic data

20:02stays firm. So it is nitty gritty time. It is like nitty. And I encourage everyone, if you're going to

20:08listen to people about the bottom market and mortgage rates, make sure they have a history of like

20:13tracking this stuff and how it works. Because there is way too many people thinking, oh, as soon

20:18as they hike rates, the 10-year yield is going to go lower and mortgage rates. If oil prices and

20:23the

20:23conflict is not going lower, it's very, very hard in this environment because so much is already priced

20:28in after that last move from 4.60 all the way to 5%. It's a big day. Logan, thank you

20:35so much for

20:36joining us, for writing about it, for walking us through. We will talk again soon.

20:40And thank you. And just remember, I encourage everyone, please follow people. If you don't

20:47want to follow me, follow people that actually track the bond market and mortgage rates with

20:52history that do not have an ideological take, right? We're seeing way too many people with an

20:57ideological take, whether they hate Trump or like Trump or whatever. And some of the things they say

21:02just don't work with the history of economic cycle. So make sure you follow somebody that

21:07religiously follows the 10-year yield and does bond market video reels on Instagram on this stuff.

21:13And you could maybe get a better understanding of where rates in the 10-year yield can go for the

21:17rest of this year, but also into 2027. No, I mean, I feel like the fact that you're like no

21:22longer

21:22hashtag anyone but Warsh, it's like, you know, you follow, you always follow the data and you always

21:28follow, you know, what you think if someone's right, if they're being accurate. And I appreciate that.

21:35He did a really, really good job, man. This is one of the top three Fed press events I've ever

21:40seen

21:40in my life that I've been seeing some of these things for a very long time. So I thought he

21:45made

21:45it very clear on where we are. And it wasn't shocking that the 10-year yield went up a few

21:49basis points after that. It's good to know. Okay. We will talk again soon. Thanks, Logan.

22:04You

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