Good morning on this best day of the week, Wednesday,

The main data point this am was PPI (wholesale inflation).

It came in very low and much lower than forecasted. It gave bonds a morning boost as prices actually deflated from last month. This was a big change from last month’s unexpectedly big jump in wholesale inflation. Without this news we likely would have seen rates creep higher as they often do when a rally runs out of steam. Tomorrow brings CPI (consumer inflation) and unemployment data. There is no guarantee that tomorrow’s data will also come in lower. We are very close to the Fed meeting. Locking is a good idea.

A good piece from the WSJ.

One of the surest bets you can make in finance right now is that the Fed will cut rates in a week. Beyond that? It’s complicated.

The up-then-down market reaction to last Friday’s dismal jobs report raised a classic question: Is bad economic news actually good because it will spur more rate cuts or so bad that investors should be worried?

Forecasters track dozens of factors to tell them whether America is headed for a recession or not. Nobody really knows, though, including the 400-plus PhDs working at the Fed. The economy just has too many moving parts.

All else being equal, though, lower rates will aid the economy and stocks.

Right?

Even that isn’t a given at the moment. Consider, for example, household income. The surprising conclusion from David Kelly, chief global strategist at J.P. Morgan Asset Management, is that income will suffer if rates are cut.

“T-bill and chill” has been a boon for well-to-do households, and Kelly notes that cashlike investments have reached $14 trillion. A one-percentage-point reduction in short rates would chop annual income by around $140 billion.

There are also $19.4 trillion in household liabilities that could, in theory, get cheaper to finance. But Kelly points out that $13.4 trillion is in mortgages overwhelmingly locked in at much lower fixed rates. Other borrowing, such as on credit cards, won’t move the needle much.

A really big drop in mortgage rates might be a different story. Unfortunately, the Fed has limited control over the long-term yields that determine them. Borrowing costs rose after last year’s full point of Fed rate cuts because of jitters about inflation and budget deficits. Both have become bigger concerns, and now there’s also the attack on Fed independence.

Let’s assume long-term yields fall at least a bit. Conventional wisdom also says that rate cuts boost stock prices and, indirectly, household spending through greater wealth.

The stocks-versus-bonds tradeoff is based on the so-called Fed Model that became popular during the 1990s bull market. The rule of thumb inverts the market’s price-to-earnings ratio to get an earnings “yield” that’s benchmarked against 10-year Treasury yields.

It’s comparing apples and oranges, though, since earnings yields can ignore inflation and bond yields can’t. The fact that they’ve often tracked one another historically doesn’t prove cause and effect. As AQR’s Cliff Asness, a godfather of quantitative investing, put it, the Fed Model has “the appearance but not the reality of common sense.”

An actual, evidence-backed way to predict long-run stock returns, says Asness? Look at the market’s P/E ratio itself. It’s well above average, and Fed rate cuts can’t do much to change that.

And at a higher level:

🏦 Mortgage Market & Rate Analysis

Wednesday, September 10, 2025

📊 Where Rates Stand

• 30-Year Fixed: ~6.24%–6.46% depending on source
• 15-Year Fixed: ~5.18%–5.66%
• 10-Year Treasury Yield: ~4.09%

Trend: Rates are at their lowest levels since October 2024, down sharply from early-year highs above 7%.

Even with the Fed expected to cut rates next week, much of the improvement has already been priced in. That’s why we’re seeing this drop before the Fed meeting.

📅 Today’s Economic Data – 9/10

• Producer Price Index (PPI):
• Tracks wholesale inflation early in the supply chain.
• Cooler-than-expected = supports bond rally, helps rates hold or improve.
• Less impactful than CPI (tomorrow).
• 10-Year Treasury Auction:
• Strong demand → lower yields, better mortgage pricing.
• Weak demand → higher yields, worse pricing.

🗓 This Week’s Backdrop

• Jobs Report (9/5): Only +22k jobs; unemployment up to 4.3% → weakest in years, triggered biggest one-day rate drop in over a year.
• Labor Market Revisions (9/9): BLS revised job growth down by 911,000 → confirms weaker labor trend.
• Other Labor Indicators: Jobless claims + ADP payrolls softer than expected → slowdown confirmed.
• Productivity & Labor Costs: Productivity up to 3.3%, labor costs down to 1.0% → disinflationary, bond-friendly.

🏛 Political & Policy Developments

• Fed Outlook: Markets expect 25 bp cut Sept 17 (first since Dec 2024).
• Pattern: Mortgage rates often move before Fed actions, then can tick higher on “sell the news.”
• Legislation: New bill limits “trigger leads” → improves privacy, client retention.
• Global Context: Political shifts in Europe/Asia and trade debates influencing global bond demand → affecting U.S. rates.

🔮 Forward-Looking Rate Expectations

Short Term (This Week):

• Cooler inflation (PPI & CPI): 10-yr yield could test 4.0%, 30-yr fixed toward low-6.2%.
• Hot inflation: Reversal; rates drift back to mid-6.5%

Medium Term (Fall 2025):

• Softer labor + easing inflation → possible high-5% rates for top borrowers by year-end.
• Risks = stronger data, sticky inflation, weak auction demand.

📅 Key Economic Calendar – Sept 10–13, 2025

• Wed 9/10: PPI, 10-yr Treasury Auction (Medium–High impact)
• Thu 9/11: CPI, Jobless Claims, 30-yr Auction (Very High impact)
• Fri 9/12: Univ. of Michigan Sentiment (inflation expectations) (Medium impact)

Posted by Noble Home Loans | Equal Housing Lender | NMLS #328275 |
For informational purposes only. Not a commitment to lend. Rates subject to change.

Stay safe and make today great!!!