Good Thursday AM from your Hometown Lender,

The markets look a bit different today than it did yesterday.

The Fed cut .25 as expected but also made it clear it was not planning on cutting quickly from here on. Bonds (and stocks) blew apart on the commentary. This morning’s data didn’t help. GDP at 3.1% and higher than forecast. Unemployment claims a bit lower. The 10yr is sitting at 4.59% 20bps higher than yesterday morning. Mortgage bonds are off 70 bps as well.  

Let’s recap yesterday’s Fed action…

The Fed cut rates by .25% which was already a given, although there was some definite dissension amongst the ranks with one member voting against the cut and I’m sure we’ll see more that went along to get along but weren’t fans of the cut when we look at the meeting minutes later next month. This cut concludes this round of “recalibration”, and based on the projections (dot plot) and Powell’s comments, will be the last cut we see for a while.

The dot plot came in showing a consensus that we will only see two rate cuts next year, and that is lower than the three cuts markets thought the Fed would project. I warned that a hawkish forecast like this would push rates higher, and that is exactly what happened yesterday. The hawkishness only got worse when Powell got up to talk at his press conference, where he basically said (and I’m paraphrasing here) that the emphasis is back on inflation (versus the labor market). Fed forecasts for inflation have also moved higher for 2025, and you can bet your bottom dollar that markets believe that too, which is bad for mortgage rates.

Bottom line:

The Fed meeting, dot plot, and press conference were all bad for mortgage rates and pushed them higher, and signal that we will see rates continue to creep higher again from here.

Dr. Elliott Eisenberg shared his pearls of wisdom on the Fed as well.

I hope he is correct. Markets slumped badly for two reasons. While the Fed cut rates 25bps as expected, it plans to cut rates less in 2025, but don’t worry, this Fed will change its mind, it always does. Also, a stop-gap bill to avoid a Friday government closure is on life support due to internal Republican public infighting between Speaker Johnson, President-elect Trump, and Elon Musk. The Republican circular firing squad has reassembled

It’s painful but only because we are alive. 😊

Stay safe and make today great.