CHM Blog

The day is marked with Jerome Powell’s remarks and continual comments from Fed officials pushing back on the idea the Fed may be getting close to slowing its rate increases. Yesterday, Mary Daly, SF Fed President, said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and then go on hold for “a long time.” He said the Fed is willing to go too far to kill inflation.

Big asset managers out recently with warnings that inflation is being underestimated by markets. BlackRock, Fidelity Investments, and Carmignac in the news this morning stressing going by inflation swaps, expectations are again that inflation will be relatively tame and drop toward the Federal Reserve’s 2% target within a year, while money markets are betting the central bank will start cutting rates. “Central banks are unlikely to come to the rescue with rapid rate cuts in recessions they engineered to bring down inflation to policy targets. If anything, policy rates may stay higher for longer than the market is expecting,” a team of analysts including Jean Boivin, the head of the Institute, wrote last week.

The Fed is stabbing in the dark based on the bearish view that inflation may be here to stay, the bank is continuing to take heat for missing inflation increases, saying it was “transitory”. That miss carries forward to the outlook, if the Fed blew it then, it may do it again indicating it can cool inflation to 2.0% without economic pain. The debate about inflation is generally evenly divided and each headline swings the outlook back and forth. According to Frederic Leroux, Carmignac, “Inflation is here to stay,” said in a phone interview. “After the crisis central bankers thought they could decide the level of interest rates. In the past two years they realized they don’t: inflation does.”

At 9:30 am the DJIA opened +4, NASDAQ -19, S&P -1. 10 yr. at 9:30 am 3.58% +5 bps. FNMA 5.5 30 yr. coupon at 9:30 am -20 bps and -19 bps from 9:30 am yesterday.

“Global growth has slowed to the extent that the global economy is perilously close to falling into recession,” the World Bank said in its latest report on global economic prospects. The bank expects global growth to slow to 1.7% in 2023, down from an estimate of 3% growth in June. That would mark the third-weakest pace of global growth in nearly three decades, overshadowed only by the 2009 and 2020 downturns. The Bank cited a coalescence of high inflation, rising interest rates, lower investment, and Russia’s invasion of Ukraine as threats to growth, along with pandemic-related disruptions in China and stress in its real-estate sector. For all of 2023, the World Bank forecasts U.S. gross domestic product will increase 0.5% from the prior year and expects no growth for the Eurozone.

Early this morning the Dec NFIB small business optimism index expected at 91.3 from 91.9 declined to 89.8.

This afternoon at 1 pm Treasury will sell $40B of 3 yr. notes.

PRICES @ 10:00 AM

S&P 500: 3899 +7

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

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