On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the Fed meeting, Jerome Powell’s remarks and what it means for mortgage rates.
Related to this episode:
Federal Reserve keeps benchmark interest rates unchanged | HousingWire
https://www.housingwire.com/articles/federal-reserve-benchmark-interest-rates-trump-tariffs-inflation-recession/
Enjoy the episode!
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 stories. Hosted and produced by the HousingWire Content Studio.
Related to this episode:
Federal Reserve keeps benchmark interest rates unchanged | HousingWire
https://www.housingwire.com/articles/federal-reserve-benchmark-interest-rates-trump-tariffs-inflation-recession/
Enjoy the episode!
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 stories. Hosted and produced by the HousingWire Content Studio.
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NewsTranscript
00:00there is a pathway, right? There is the whole worst, all these variables about the housing
00:05market that were really bad. Price growth was too high. Inventory was too low. The Fed was
00:09hiking rates. Spreads were bad. All that's done. The worst is over. We got to get to that next
00:13stage. If you need ideas, I'm here. I can tell you. Welcome everyone. My guest today is lead
00:24analyst, Logan Motoshami, to talk about the Fed meeting, Jerome Powell's remarks, and what it
00:29means for mortgage rates. First, I want to say thank you to our sponsor, Optimal Blue,
00:34for making this episode possible. Logan, welcome back to the podcast on this Fed day.
00:40Wow, this was good. This Fed meeting, man, it could have gone any four different ways,
00:49and there could have been a valid case for everything. So considering everything that's
00:54out there, this is as best as you could have hoped for if you're in the mortgage and real
00:59estate industry. As I'm talking to you right now, Powell's still finishing up the Q&As,
01:04and the last thing I saw was the 10-year yield just collapsed. It's about four to a quarter
01:08right now. So we're getting closer to that, testing that key level. But the first thing
01:14that hit my mind when I saw the statement was they raised the unemployment rate.
01:19And we've talked about this for many, many months now. I believe the Fed kept the unemployment rate
01:25target low just in case if something happens out there. And as soon as that kind of got off,
01:32bond yields fell, because what they're doing is they're lowering the growth
01:35for 2025, or they're already accounting for everything that's happening right now.
01:41So the unemployment rate target for 4.2 to 4.3 now is 4.4 to 4.5. They can raise this again
01:47for later meetings. So right there, they're telling you they're mindful of the economy.
01:54The quantitative titan has now, I think, 25. They've moved from 25 to 5 billion.
02:01OK, so the QT is slowing down. They didn't cut it off completely.
02:05They can still do that in the future if needed to. So a lot of talk about tariffs. They raised
02:12their inflation expectations again for this year. It was going into 2% to 2025. They raised it to
02:172.5. Now it's 2.7 for the PCE inflation. And then the next year, it drops down noticeably.
02:25So everything, just to keep things simple, because there's a lot of things going on here,
02:30this is as good as you could hope for. And hopefully he doesn't say anything crazy while
02:35we're doing this podcast. OK, so when they move the unemployment target like that,
02:42from your perspective, if they say, here's the unemployment target, and then we go past that,
02:46shouldn't they say, OK, now we have to redo policy instead of just like, OK, now we're going to
02:50change the target? I know. You have to say it. People are listening.
02:57Paper, rock, scissors. Rock is labor. Inflation is scissors. What they're telling the marketplace is,
03:04yeah, guys, unemployment rate, labor, labor data is starting to get on our minds. So when you lower
03:11the growth forecast and you raise the unemployment rate, that means you're there. They're basically
03:17telling the markets, OK, guys, let's be aware of this. Right. They could have kept it like at
03:23four and a half percent at the start of the year and just, you know, give them something.
03:27They did this, I believe, on purpose. So if the economy changes right then, OK, let the market
03:34know. So there's so much about tariffs in this meeting about, you know, the buying of goods,
03:44going into the tariffs, you know, how much is this is just a one price hit. And, you know,
03:50they're kind of telling people if it's just a one price, it's transitory.
03:55It's transitory again. And then in that context, they don't need to really hike rates in this.
04:02So that's good that there are some people that are saying they need to hike rates. But
04:07now you've got half a percent of rate cuts into the system. If the economy gets weaker or the
04:13labor data starts to get weaker than what they're talking about, it's basically telling the 10 year
04:18yield. It's OK to go a little bit lower because we'll be a little bit more aggressive because
04:23what we talked about before is that we already had a really big move in the 10 year yield.
04:27We weren't that far from my peak bottom forecast as long as the labor market stayed intact. So
04:36with everything here, that's as good as you can hope for.
04:40OK, as good as we can hope for. And what did you say the 10 year yield did? And I mean,
04:44you just got it. It just it had a waterfall dive right now. I think, you know, the last I checked
04:51was four and a quarter. So there was a fear that they would be very, very hawkish and say,
05:00well, we're raising raising inflation expectations and we we're taking the rate cuts off. And if they
05:08said that, there's a case for that as well. But that didn't happen. And there was more talks about
05:14the labor market. Right. I think that's the key. Right. We went into this year saying labor market,
05:19labor market, labor, unemployment rate, unemployment rate target was low on purpose.
05:24If it moves itself up, that's a positive for the 10 year yield and rates. They're lowering
05:29the quantitative tightening is slowing down. Right. So that slowdown means less treasury
05:33supply. So good. All these things, considering everything, it's a positive out there.
05:40OK, if you're a mortgage loan originator out there, OK, you can say this is a positive. At
05:45least you're not. You know, I can I can tell my clients are not raising rates. I'm not going to
05:49raise rates, at least that we can see right now. How low do you think they can go? Still, the
05:55bottom end range is five point seven five. And you're going to need weaker data to get you there.
05:59Now, we do these channels with a 10 year yield forecasted rates. Right. And every year we have
06:03a growth slowdown, scare bond yields go down. And, you know, we've been able to hit the horror line
06:09twice since the end of twenty twenty three. So that's in play. If the economic data gets
06:15weaker, there you go. Right. The question is, we need to have a period of time where it goes
06:20lower and stays lower. Right. So we're moving our direction toward if we just had one more percent
06:27of rate cuts into the system, it's easier to get the 10 year yield and mortgage rates
06:32down to six percent. And why does it matter is purchase application data came out today.
06:38Slight, very smidgen week to week growth, but another six percent year over year growth
06:44quietly and nobody else is really talking about this. The majority of the year this year has
06:48positive year over year purchase application data. You know how long it's been since I've
06:52been able to say that because the COVID-19 actually ruined all the purchase application
06:56data year over year. It's been a while since I've been able to say that. Now, this isn't
07:02like housing's booming. The head of the White House Economic Council went on TV and he said,
07:08housing's booming. And I was like, I can't let him get away. He was taking that from the purchase
07:13apps data. No, no, no. He just said it. He has I'm pretty sure he has no idea what the housing
07:17data is. So I had to retweet him and show him the purchase application data. And it's just like,
07:21again, like we always say, back to levels where Gangster Paradise was the number one song.
07:26No doubt was the awesome new band, you know, and so permits are not going anywhere. New home sales
07:33aren't going anywhere. Existing home sales are still working from the lowest level. So I
07:37understand politicians, politician, political, economic people come on TV. They embellish things.
07:43But what he could have said, what he should have said, which had the data is that
07:48since mortgage rates have gone lower, right, there are a whole thing is about the housing market,
07:53right? We want the 10-year yield. We want mortgage rates to go lower. Yes, yes, yes.
07:58Purchase application for the majority of the year has been positive year over year.
08:02If you would have said that he had the data to back it up. So all this is happening with mortgage
08:08rates still elevated above above what the growth data is, which means that we I only see data get
08:16much better when mortgage rates go from six point six four down towards six percent. If I take the
08:21seasonality of data now, we're here. We're positive year over year. Mortgage rates haven't really
08:27broken under six point six four. If that happens, what I know the White House is thinking, housing
08:33demand picks up and then they could market it to everyone on TV. Look, the housing market's back.
08:39Right. Mortgage demand is up. Home sales are up. Americans move. Yes. And why do we know this?
08:45Because we set talked about we would like to unfreeze the housing market.
08:50Now, here you are. You have laid out a pathway for like do this and get an easy win. And in the
08:56process, then then you could say housing was booming or at least the housing industry. Right.
09:02It's better than what it was last year. There's limits to what you can do. But again, I understand
09:08the concern early on was that, oh, tariffs, inflation, deportations, tax cuts, all these
09:17things. Rates are going to explode higher. Eight percent mortgage rates, you know. And since that
09:22time frame, since January 14th, the 10 year yield has slowly gone down. Growth has slowed down.
09:28Labor data going out looks a little bit shaky in terms of keeping the unemployment rate at four,
09:33four, one point one percent. So they've raised their unemployment rate target. That's what the
09:39whole focus was this year going into. And we got it early. Right. We got it in March. So that's
09:44that's a positive in that sense. So I'm just like, OK, considering everything is on the plate,
09:49this is as good as you could hope for. We're not that far. We're about 40 to 45 basis points
09:54away from the bottom end of the forecast. And if we break under three point eight oh,
10:00then that means, you know, there's something the labor data is getting really weak. Last year,
10:05the HODL line broke because three of the four reports on jobs weeks were really big misses.
10:11Right. And then the economic data started to get better. And then that come. But
10:14what Powell was talking about today, consumption, he was saying, yeah, consumption is pulling back.
10:18He's right. Like some of the consumer discretionary spending is pulling back.
10:22I know other people are looking at that as well. So there's something there that's good,
10:27that they are still focused on the economy and the labor market where, you know, two years ago,
10:34I remember one of the Fed presidents came out and said, well, even if the unemployment rate goes up
10:37and jobs are being lost, we might not cut rates. OK, we're past that stage. And this is just a
10:43spot. So with everything in play, that's as good as you could help for. So I see this as a net
10:49positive. I know a lot of people are talking about the stagflation discussion, just a hypothetical.
10:54Forget about the 1970s. We're not talking about the 1970s stagflation. That was an oil shortage.
11:00Housing was booming back then. None of that is happening right now. But what you can be
11:04concerned about is, hypothetically speaking, a three and a half percent PCE inflation,
11:10a wage growth running at three percent and nominal growth running at three percent.
11:14This is not the 70s stagflation. But something like that, in theory, you could you could actually
11:20make a make a case for. But hopefully, you know, wage growth, he said wage growth stayed
11:26solid, stabilized, OK, at a healthy level. That was positive. I always I'm glad that we're
11:33leaving the we have to attack the labor supply. We have to attack the labor supply.
11:36Wage growth is too strong. We're we're going away from that. That was you know,
11:40you knew you had a lot of work left to attack labor if they were saying wages were too strong.
11:45Now, everything is a little bit more balanced. So you could focus on the economic data.
11:50What were the questions mostly about? Were they about tariffs?
11:54Tariffs, right. Tariffs, you know, is a growth. Why are you cutting rates if you need if you
11:58believe inflation is? And again, the Fed funds rate is up here. The growth rate of inflation
12:04is here. Even their high estimates, higher estimates for 20 is that we they're not they're
12:10not here yet. Right. So they are still restrictive based on their policy. Doesn't matter what I think
12:15or anybody else thinks. Fed funds rate is up here. This is where it is. They before they.
12:22You know what? I became friends with Pulte on Twitter and I'm going to do what I can to help
12:27the White House and the head of the FHFA on anything on housing. William, ask me anything
12:34you want. I'll give you the best ideas. But before somebody spiked the Fed's eggnog in 2022,
12:42there was a Federal Reserve. Those old cranky people at the Federal Reserve did have a really
12:47nice premise that if we just want the three, six, twelve month core PC and the Fed funds rate to
12:55kind of match themselves to be neutral, then that's a good spot to be. That still means you've
13:01got some leeway to cut down to get to neutral. Now, everybody is wondering what neutral policy.
13:07I think neutral policy is these one of these gimmicks out there. You don't know what it is
13:11because it really revolves around the economy. If the economy is weaker than neutral policy,
13:15it doesn't matter. But three and a half, you know, Fed funds rate, that could be a target
13:21that's workable. And to me, that's that makes it easier to get down towards 6 percent. And also
13:25when you get more rate cuts in the system, the spreads can act better as well. So so I'm just
13:31I could have gone any way with this. And some people say there was slightly hawkish. Some people
13:37were maybe too dovish. But whatever it is, it's a it's a better spot than what it could have been.
13:44It could have been a very, very hawkish, dark, you know, Darth Vader Powell out there and,
13:51you know, just saying, oh, we need to we need to we're taking all the rate cuts off and we just
13:56need to wait a year or two until we see that what the tariffs happen. They kind of just took a step
14:01back and said, hey, we'll see. So I'm hopefully when I when I got on this podcast, it was four
14:06and a quarter. And that's a positive. And some of the things you were saying, I see that as a net
14:10positive compared to what could have been. OK, let's talk about Powell real quick, because
14:16today or last night, it's hard to say exactly when it happened. Trump basically fired two of
14:22the FTC commissioners. So usually you have three of one party, two of the other. He fired the two
14:28Democratic commissioners, which people have said if he's able to do that, if that's legal, then he
14:33could also fire Powell. Of course, we don't know. I mean, we know that he did that, but we don't
14:38know if there's going to be something filed. I think one of the commissioners already is already
14:43suing over that. What's your take on Powell and his future? So this is going to go to the courts
14:51and the courts will decide it. I think Fed President Waller said it best. He said the
14:56Supreme Court's going to make the decision on this. And if they say he can fire us,
15:00he could fire us. And we'll just take it from there. So for now, you know, I've been writing
15:06this war against the White House and the Federal Reserve for mortgage rates. Right. Obviously,
15:10with all the statements that the White House and people in the White House have taken,
15:14they want the 10 year yield to go down and they want mortgage rates to go up.
15:17It will be interesting to see what the Supreme Court says on this. There are things
15:25that the White House, the Treasury Secretary, William Pulte, and the Fed can do working
15:31together just to get rates just a little bit lower and breathe a little bit of life
15:36into the housing market. Maybe get, oh my God, maybe get housing permits growing again.
15:41Right. And we'll see what happens in the future. But again, we went into this starting with
15:48Steven Mnuchin saying we would like to have a cap at four and a half. I'm like, oh, nobody knew
15:53what that meant. But I'm like, oh my God, they want mortgage rates to go lower. Nobody knows
15:58this yet. If you're talking about caps already before the first week of the White House, you
16:03know, that's a talk. So obviously that was the discussion, 10 year yield going lower, mortgage
16:08rates going, people buying homes, having sex, and then they could market it. Look what we did.
16:13We brought life back to the housing market. So we'll see what the Supreme Court says. If the
16:18Supreme Court rules that you can't do it, then it's not a subject matter. It's not a talking
16:22thing. But again, there are things, the Treasury, William Pulte, Bill, yes, things that they can do
16:30to maybe get mortgage rates a little bit lower. And we don't need much. We don't need much. If
16:35we're already having positive purchase application data with elevated rates, you just get it down to
16:40six. You hold it there. Home sales are going to grow. And all the White House can market that.
16:44William Pulte could market it everywhere. You know, it's like the movie Ghostbusters where
16:49Bill Murray tells the mayor, Mayor, think about all those voters, you know, and they kick
16:56Peck out of the door and get that guy out of there. So if you need ideas, I'm here. I could
17:02tell you. So it doesn't take much. We're not talking about three, four, five. There's going
17:08to be no QE. None of that stuff is happening out there. But if we got a little bit better data with
17:16purchase apps with rates still elevated, just imagine, it goes down towards six and just stays
17:22there. Got a couple hundred thousand. That's all it's going to be. But still, growth is growth.
17:26We just go with it, right? We'll take it one day, one week, one year at a time. But for now,
17:31there is a pathway, right? There is the whole worst, all these variables about the housing
17:37market that were really bad. Price growth was too hot. Inventory is too low. The Fed was hiking
17:41rates. Spreads were bad. All that's done. The worst is over. We got to get to that next stage.
17:46So hopefully that's the case. I know certain people are listening to this right now. You
17:52know where to get me. Contact me anytime, 24-7. The Chart Daddy's here to help the American people.
17:58Right? A little bit more action in the housing market.
18:02Yes. Logan at hwmedia.com. Absolutely. Or Sarah at hwmedia.com. We are both available.
18:08Logan, thank you so much. By the way, thank you for everybody that
18:10is harassing Sarah that she does boss me around and says other stuff. So I agree with all of you.
18:15Yes. Team Logan out here. I'm very pleased about that.
18:21I get so much crap about this. Anytime I say anything, like what was it I told you you're
18:26being too theatrical, you heard from that and people are hating on me for that. I was like,
18:31literally, it's just true. You are very theatrical. You try to be theatrical.
18:35Listen, Sarah, if you're trying to go against the Chart Daddy,
18:39okay, you're going to make some enemies. Apparently that's true. Oh my gosh. Logan,
18:45thanks for being on today and explaining the Fed. We will talk to you again soon.
18:48Pleasure.