In a Nutshell: With an absence of economic data, geopolitics and the Fed are once again moving rates as markets carefully monitor negotiations with Iran and Canada, and eagerly await Chair Warsh’s speech Friday from Jackson Hole.
Upcoming Attractions: The biggest event on the calendar is Friday’s Jackson Hole symposium where Kevin Warsh will be giving the customary address at 10am. In both of the last two years, the Fed chair’s Jackson Hole address caused 10-year yields to fall by about 10 bps. Not every year sees similar volatility, however, and JPMorgan’s economists estimate an average effect of 5.5 bps over the last 25 years. Chair Warsh has so far stuck to his guns on offering no forward guidance to the market, and there’s no reason to think he will relent on Friday. If that holds, this may be one of the least informative Jackson Hole speeches in a while, though that may not stop markets from coming away with some reason to sell off or rally.
Wednesday brings new core PCE data, which is the inflation gauge the Fed uses. Given the already released CPI and PPI readings earlier this month, monthly core PCE is anticipated to land somewhere between 0.2% and 0.3%. Whether it rounds up or down should not have a big effect on the Fed’s thinking since the PCE shares the same input data as CPI and PPI. The only sources of uncertainty are the weighting of different categories based on actual expenditures in the PCE survey and seasonal adjustment factors, which will not materially affect the Fed’s view on progress to their inflation target.
Last Week’s Highlights: Last week brought three interesting developments relevant for mortgage rates:
- Expanded Treasury buyback program for long dated securities: While the timing of the announcement outside of the standard quarterly treasury refunding statements is something to mull over, the program itself did not have a lasting impact on rates. In order to have a long term effect on rates, policy changes need to be viewed by markets as both meaningful and durable. For example, a more fundamental shift of Treasury issuance from the long end to the short end could have a larger effect on mortgage rates.
- The FOMC minutes: The biggest news out of the minutes from the last Fed meeting is that “several” participants favored hiking. We know there were three public dissents and one non-voter who would have favored a hike. So that means, using the usual conventions of Fedspeak, there is at most one more who would have voted to hike. That suggests that there is not a hawkish majority that will vote to hike at the September 16th meeting, especially in light of the recent weak jobs and inflation readings.
- Canadian tariff negotiations: Late in the week, tariff negotiations between the US and Canada heated up. While the talks have been dramatic, the ultimate flow through to rates will be minimal as the potential impact to the average tariff rate faced by the US will not be significant.
- Weekly update: New Listings Tick Up As Summer Winds Down
- U.S. Home Prices Rose 0.27% in July, Essentially Unchanged From a Month Earlier
- With Buyers Firmly in the Driver’s Seat, Home-Purchase Cancellations Hit Highest Level in Nearly 3 Years
- Now’s the Time: Late Summer Is the Best Season For Homebuyers to Score a Deal in These U.S. Metros
