Good Friday morning from your Hometown lender,

Some mid-tier data today which came in largely in line with expectations.

Retail sales were +.5 as expected. Consumer Sentiment was the outlier and dropped like a rock. I like the Consumer Sentiment and Consumer Confidence data sets as they are two of the very few forward looking metrics. Consumers inherently know what is going to happen in the future by living today vs the data geeks who use backward looking data to predict the future. None the less, the drop in Consumer Sentiment is something to watch closely.

Rates are marginally worse today. We are truly just trading up and down the same channel we have been for a few weeks. The likeliest path is that we will hit the top of the 10 yr yield rand of 4.35% and then travel back down the channel to 4.25%. It is still summer on Wall St, and reduced trading volume on Friday afternoons can exaggerate some movement. \

Quick summary of where we are at heading into next week…

Rates improved when the BLS jobs data two weeks ago showed huge revisions lower in jobs created for May and June. Markets almost instantly priced in a September Fed rate cut, and all eyes were on inflation data. The CPI consumer inflation data came in pretty much as expected, and we saw a bit of a light relief rally that made it look like markets were expecting worse. Although inflation was still creeping higher ever so slowly, there were whispers that the Fed might have to cut a half-point in September. Then the wholesale inflation data came in higher than expected, showing that the tariffs are currently being paid for by the wholesale side will likely find their way to the consumer pocketbook in the coming months, increasing consumer inflation.

Right now markets are still pricing in a September Fed rate cut, and at least two cuts this year. Next week markets will look for Fed Chair Jerome Powell to use his speech at Jackson Hole to give some hints on where things go from here. Rates aren’t in a position to move significantly higher or lower next week, but we could definitely see pricing worsen in the coming days.

The battle for the next Fed Chair position is already heating up.

Two prominent candidates for Federal Reserve chair publicly advocated for aggressive interest rate cuts, aligning with president Donald Trump’s repeated calls for monetary easing. Economist Marc Sumerlin, managing partner at Evenflow Macro and former senior economist under president George W. Bush, told CNBC that lowering the Fed’s key rate would be an easy decision now. “We could easily do a 50-basis-point cut… without disrupting anything at all. So it seems like pretty much a no-brainer to me,” Sumerlin said. He confirmed receiving a White House call last Wednesday informing him of his inclusion on the candidate list. 

Wall Street veteran David Zervos, chief market strategist at Jefferies, also endorsed rate cuts during a CNBC interview Thursday. For three consecutive Fed meetings, he has advocated half-percentage-point cuts in the federal funds rate. “I think there is a reasonable storyline, a very cogent storyline, that suggests monetary policy is restrictive,” Zervos said.

He argued for bringing “more market-savvy, more market-competent people” into monetary policy decisions.

A September cut is almost assured, and it already priced into rates so unless the Fed does cut by 50bps, I would not expect mortgage rates to improve much from here. If there is no cut, rates will worsen quickly. It is a good idea to explain this to clients as most think rates will drop when the Fed cuts.

The biggest news today will be how the conversation goes between President Trump and Putin. I think everyone (other then Putin) wants the killing to stop. Fingers crossed.

Stay safe, enjoy the weekend, but first, make today great!!