The empire reacts to lower mortgage rates

After the huge rally in bonds and stocks last week, I wondered when the Federal Reserve he would make a statement to try to reverse some of this momentum. Well, it didn’t take long: Federal Reserve Governor Christopher Waller made comments at an economic conference in Australia on Sunday that clarified their position.

This is the second time this year that the Fed empire has reacted after mortgage rates fell. Currently, the 10-year yield has reversed and is already pointing up towards 3.90%.

Here are some of the comments made by Waller, second tweet by Nick Timiraos from the Wall Street Journal:

“The market seemed to be waaaa-aaaay ahead…. I can’t really stress that this is a data point.

“We still have a long way to go.”

The Federal Reserve is very upset by the market reaction; they know that housing is in a recession and that jobs are being lost. If mortgage rates start to rise towards 5% and stay there, their recession forecast for job loss would be harder to come by next year. Note the use of the language of “waaaa-aaay out front.”

I understand that last week’s stock and bond market rally was extreme – I believe people were on the other side of the trade, thinking the CPI report was going to be warmer than average. People got out of that trade when that didn’t happen and the markets worked with it.

However, the Fed doesn’t think that way. They were very upset that mortgage rates would drop in early summer and will do their best to create more pain for American families.

Timiraos other tweets:Waller on easing financial conditions following Thursday’s market reaction: “This is exactly the situation we entered in July. ” Then there was “An easing of financial conditions that we were trying not to do”. 7.7% CPI inflation “it’s huge”.

Mortgage rates fell from 6.25% to 5% in July; construction found some stabilization for the short time we were in the low 5 and members of the Federal Reserve hated it. They did a complete media blitz making sure people knew they weren’t joking that Americans needed more pain, the job market was too tight, and wage growth too strong.

The Fed, to their credit, has presented a united front on this, arguing that the best way to fight inflation is for Americans to lose their jobs and for labor markets to become so weak that wage growth slows.

It’s now November, but the Fed hasn’t changed its playbook: any chance to try to avoid a recession or even attempt to reverse the housing recession will be met by such a coordinated media blitz. This weekend is the second time the Fed has shown that it is shocked by the market move. However, this time around mortgage rates went from 7.373% to 6.60%, a far cry from the 5% level we saw earlier.

Waller also pointed out that if you use a Taylor-type policy rule, short-term interest rates aren’t that high. “We’re not that tight. Real rates are barely positive after one year. “

The Atlanta Fed defines the Taylor rule as “an equation introduced by John Taylor in a 1993 document that prescribes a value for the federal funds rate – the short-term interest rate targeted by the Federal Open Market Committee (FOMC). ) – based on values ​​of inflation and economic slowdown such as the output gap or the unemployment gap. Since 1993, alternative versions of the original Taylor equation, called “simple (monetary) political rules” have been used.

I won’t bore you with all the historical references of the stock market and Taylor Rule over the decades. However, it is clear that the Fed is saying ‘Listen, the Fed funds rate is not that high, so stop crying. We don’t care that housing is in a recession. ‘ That was the point of the housing restoration declaration.

As a person who has been following the markets since 1996, I have to say that this is a smart way for Waller to talk to the markets. He shows that the Fed means what he says: he has an expected unemployment rate of 4.4% next year and he intends to use all his tools to make sure the job market gets weaker and weaker.

From Timirao: Waller: The November FOMC statement was designed to signal a potential move to 50 basis points. “We knew the markets would jump for joy.” So the Fed used Powell’s press conference for “drive the point home” which is the final tier for fares that matters.

I believe the Federal Reserve is getting closer and closer to the end of its Fed rate hike cycle and they want financial conditions to be as tight as possible to make the job loss recession happen. Once the job loss recession occurs, they need to be more accommodating because this is their dual mandate.

My target for the Fed pivot is when jobless claims exceed 323,000 on the four-week moving average. At that level, the job loss recession began and the Fed would achieve its goal of making the job loss recession stop inflation.

With inflation levels well above the 2% target level, the Fed must sound as tough as possible now. All of these aggressive pushbacks by Fed members when rates go down and stocks go up, will end when we have a job loss recession.

From multiple sources: “Everyone should just take a deep breath, calm down – we still have a long way to go. ”

As you can see, the Fed is not happy with the move in the equity or mortgage markets. So when they say calm down, they say, all that smoke on a soft landing – we don’t want a soft landing. If they did, they wouldn’t make a big deal when mortgage rates go down and stocks go up.

My advice: don’t think the Fed wants a soft landing; they want a higher unemployment rate and will try to coax the market into higher rates and lower stock values ​​when they feel the need to do so. As the saying goes, You fool me once, be ashamed. You make fun of me twice, be ashamed. ”

Latest market news quoted Waller saying: Real estate markets in the United States will do well.

The housing market went into recession in June of this year: sales fell, production fell, jobs were lost, and incomes were lost. You see, even with the housing market in recession and lost jobs, the Fed doesn’t care. To say that a sector of the economy is doing well while in a recession shows a certain disconnect from the real world.

Ladies and gentlemen, I give you the Federal Reserve in its purest form when they say housing will do well while it is in a recession. If it had been me, I would have at least recognized that the housing market is in recession and jobs are being lost. Then, after that statement, I would talk about how I believe it is crucial for the housing market to find a balance, which is happening right now.

Not recognizing that jobs are being lost in such a large sector of the economy makes you seem heartless and disconnected from reality.

After Thursday’s big stock market rally and the sharp drop in mortgage rates, I wondered if the Fed would issue a statement to try and persuade the markets. The Fed released its statements this weekend, so get used to this type of Federal Reserve reaction until the job loss recession occurs.

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