According to Fed Funds Futures data, The Federal Reserve is now forecasting 9 rate increases over the next year.
Fed Funds Futures are pointing to 8.924 rate hikes by the Fed FOMC meeting on February 1, 2023.
The US Treasury 10Y-2Y curve flattened by 5.5 bps today with the entire curve downshifting.
The Federal Reserve reminds me of The Office episode “Malone’s Cones.” They can’t really explain why they kept rates so low for so long (policy error) and seem to risk collapsing the market with rapid rate hikes without much sensible explanation.
The Federal Reserve is not mentioned in the movies “The Big Short” or “Margin Call”, but The Fed’s policy errors played a big role in the demise of Fannie Mae’s and Freddie Mac’s equity prices.
Here is a chart of The Fed’s many policies errors. Let’s start with The Fed lowering rates too fast around the 2001 recession. They pushed their target rate from 6.5% in December 2000 down to 1.75% after one year and then down to 1% (PE1). As home price growth accelerated, The Fed engaged in their second policy error — raising rates too fast resulting in a dramatic cooling of home price growth. Then came Policy Error 3: the dropping of The Fed Funds Target rate from 5.25% in September 2007 to an eventual 0.25% in December 2008.
With the election of President Obama, The Fed engaged in Policy Error 4: keeping The Fed Funds Target rate too low for too long, combined with their massive asset purchase programs (QE).
Finally, The Fed (under Yellen) finally raised The Fed’s target rate ONCE under Obama, but started raising rates once Trump was elected. The Fed also slowed their QE under Trump which as called “Fed policy NORMALIZATION.” Then COVID struck and The Fed engaged in Policy Error 5: keeping rates too low for too long … again while massively expanding their balance sheet.
Fannie Mae and Freddie Mac, the DC mortgage giants were done in by The Fed’s whipsaw Policy Error machine.
Now we are embarking on PE 5: Powell and The Fed Gang not raising rates but signalling that they will. Like the play “Waiting for Godot.”
Mortgage applications decreased 1.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 11, 2022.
The seasonally adjusted Purchase Index increased 1 percent from one week earlier. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 8 percent lower than the same week one year ago.
The Refinance Index decreased 3 percent from the previous week and was 49 percent lower than the same week one year ago.
Bankrate’s 30-year mortgage rate has surged to 4.46%.
Here is a photo of alligators in Great Falls, Virginia, up-river from Washington DC. They are likely congregating for the Fed Open Market Committee (FOMC) announcement today.
The mayhem caused by the Russian invasion of Ukraine is helping drive down interest rates … for the time being … and this is helping push down mortgage rates and increase mortgage applications.
Mortgage applications increased 8.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 4, 2022.
The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index increased 11 percent compared with the previous week and was 7 percent lower than the same week one year ago.
The Refinance Index increased 9 percent from the previous week and was 50 percent lower than the same week one year ago. Diane Olick at CNBC has the hilarious headline “Brief drop in mortgage rates sparks mini refinance boom.” The slight rise in refi applications from the previous week is more of a firecracker going off than a boom given that refi apps are still down 50% from the same week last year.
Bear in mind that the US Treasury 10-year yield is up since the MBA’s reporting week ended on March 4, 2022. So, look for Olick’s mini-refi boom to end as quickly as it started.
Here is the rest of the MBA story.
The MBA Mortgage Purchase applications index typically peaks in mid-to-late April, so we still have another month (seasonality) until purchase applications begin declining again.
The US Treasury 10Y-2Y curve continues to flatten and is the worst curve recovery in modern history.
The general rise in US mortgage rates is more closely tied to expectations of Fed rate increases than Fed Agency MBS holdings.
While Corelogic’s January home price index was hot, hot, hot (UP 19.1% YoY), today’s mortgage applications index for the week ending February 25, 2022 was not, not, not.
Mortgage applications decreased 0.71 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 25, 2022.
The seasonally adjusted Purchase Index decreased 1.76 percent from one week earlier. The unadjusted Purchase Index increased 1.16 percent compared with the previous week and was 9 percent lower than the same week one year ago.
The Refinance Index increased 1 percent from the previous week and was 56 percent lower than the same week one year ago.
Yes, the mortgage industry is going through some difficult times. But not as difficult as trying to understand Biden’s State of the Union address: “Putin may circle Kyiv with tanks, but he’ll never gain the hearts and souls of the Iranian people.” Huh?
And then Biden’s closing remark was “Go get ’em!” What? Go get whom? The Russians? Inflation? Trump supporters?? I feel like Biden thought the SOTU was the annual Army-Navy football game.
Russia is still attacking Ukraine and I am still seeing stories about actor/comedian Bob Saget’s cause of death. So now for something completely different.
And this doesn’t include the inflation in prices caused by the Russian invasion of Ukraine. Yet.
US Personal Consumption Expenditures (PCE) price index rose by 5.2% in January, the fastest rate since mid-1983.
With CPI inflation at 7.5% YoY, the Taylor Rule suggests a Fed Funds target rate of 13.35%, higher than the current rate of 0.25%. Overstimulated much??
Confounded Interest - Anthony B. Sanders 
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