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1. Fed Coffee Corner: Summary of June Fed Meeting & Market Implications ☕️

By the way, this article on Apple Vision Pro is the most clicked link in this newsletter, you should check it out if you are interested.

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Nuwave Rates Today

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Fed Coffee Corner: Summary of June Fed Meeting & Market Implications ☕️

For the first time in over ten months, the FED decided to skip a rate hike in yesterday’s meeting - holding the FED Funds Rate between 500-525.

What will short-term mortgage rates do?

In yesterday’s press conference, Jerome Powell began answering questions with an extremely hawkish stance toward the economy and future interest rates.

Additionally, he shared this dot plot from FED members, giving their predictions on the federal funds rate through 2025:

The Fed is telling us here that they have penciled in two additional rate hikes this year. Raising the Fed rate by another 50-75bps before the end of the year.

Mortgage companies price in these expectations ahead of Fed moves. Even without a Fed interest rate rise, we should see mortgage rates remain elevated and even rise throughout June in anticipation of future hikes.

What does the future hold?

According to the FED - inflation will be under control by the tail end of 2023 or early 2024.

Then, they are predicting 4 interest rate cuts in 2024. Landing the FED funds rate around 4.5% according to the dot plot. If that holds true, mortgage rates would be in the low 6% range.

So, even with cuts on the horizon, it may not happen as quickly as people may want to believe - especially those who bought with a “2/1 buydown” in 2022…

After that, the Fed clearly has no idea. The range of predictions is between 6.5 - 2.5. So, they should really just give us a question mark instead of a dot plot at this point.

As much as we want to look at forecasts and impress our own desires on the interest rate market, (trust me, I want them to come down too…) it is clear that inflation is sticky and more work needs to be done before inflation actually comes down and then start cutting rates.

But that dream continues to be kicked down the road, landing around Q1 of 2024.

Choose your camp -

It may be me being a nerd…but for the first time during a FED meeting, I actually started laughing at some of the questions.

There seem to be two clear camps (both of which think the Fed has no idea what they are doing):

In one camp, we have reporters who ask Powell what he is looking at that makes him think we need additional rate hikes this year.

That camp has people like Barry Habib who is standing on his chair yelling at the FED claiming that they are not looking at the data correctly. Saying that they are hiking way too much, that inflation is already under control but all the data is lagging, and that the job is done.

That camp believes there is no need for rate hikes, and some believe we should even be preemptively cutting rates today.

In the other camp, we have people like Nick Timiraos of the Wall Street Journal who says - if the FED is already planning on hiking rates two more times this year, why pause? Why not just rip the bandaid off now and get it over with?

In the press conference, he said to Powell directly:

I tend to be in the latter camp.

The Fed saying that they are going to raise rates another 50bps later this year and then pausing solves nothing. It merely causes confusion, and uncertainty - delaying the inevitable.

If we are going to see higher rates, just do it now. 

As many reporters said in the press conference, the only new data point the Fed will have by the July meeting is the June CPI print…that’s it. It’s not like they are going to have a huge revelation and data we don’t already know.

TL/DR

Fed forecasts two rate hikes for the rest of the year. Expect mortgage interest rates to stay elevated (above 6.5%) through 2023. We could even see rates stay above 7.0% until the fall.

The Cul-de-Sac

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