Good Thursday AM,

More hawkish Fed speak today is undoing yesterday’s doing. The 10yr back to 3.30%. Mortgage bonds feeling the pain too. At a think tank conference earlier today (the Cato Institute Conference), Federal Reserve Chairman Jerome Powell reiterated his pledge to stay the course on the central bank’s aggressive inflation-busting policy.  “The Fed has, and accepts, responsibility for price stability” “We need to act right now — forthrightly, strongly.” “History cautions strongly against prematurely loosening policy,” “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”

Clearly Chairman Powell is reaffirming a commitment to a hawkish policy stance.

The Fed chair is trying to temper expectations among consumers and businesses that prices would continue to rise, which could trigger changes in spending, earning and investing habits that could be hard to undo. Powell’s concern that people could habitually come to expect inflation was echoed by Fed vice chair Lael Brainard at a banking policy conference speech in New York on Wednesday. “It is especially important to guard against the risk that households and businesses could start to expect inflation to remain above 2% in the longer run,” she said. Investors now overwhelmingly expect a 75 basis-point hike at the Fed’s upcoming policy-setting meeting in less two weeks.

I am still not yet convinced that 75 basis points are locked in as we still have inflation data next week. 

As a side note, the ECB raised their lending rate today by .75 and despite the Eurozone economy being in dire straits, Christine Lagarde is committing to raising rates in successive .75% tranches.. I can see where this could actually help rates here as the ECB move has the opportunity to make the Euro more expensive and devalue the dollar. That would help rates.  

Sharing balanced information, despite continuing to believe it is transitory, I wanted to share a report from Black Knight, which showed falling home prices likely resulted in homeowners’ tappable equity peaking this past May. The company’s monthly Mortgage Monitor reported annual home price growth shifted from deceleration to decline in July as the median home price fell 0.77% from June – the largest single-month decline since January 2011. More than 85% of the 50 largest U.S. markets are at least marginally off their peaks through July, with home prices down by more than 1% in a third, and more than one in 10 seeing prices fall by 4% or more.

And lastly, I can’t resist mentioning yesterday’s release from Apple.

New Apple iPhone 14, New AirPods Pro and New Apple Watches. The new phones bring expected improvement in cameras, screens and processors, along with some new safety features and display tricks, while prices remain relatively stable. (▶️Video) They were introduced Wednesday along with other updates. Three new Apple Watch models offer different mixes of health, fitness and emergency sensors. And after nearly three years, Apple updated its AirPods Pro, improving noise cancellation and battery life.

Please remain safe and healthy, make today great!