Critical Rate Cuts Loom as Market Chaos Unfolds

Hey everyone! We've had an absolutely wild week in the mortgage industry, and things are just heating up. As we begin a new week, the markets are already spinning out of control. What's behind all this chaos? We're here to give you the full scoop. Let's get started!

Read time: ~3 minutes

Rates ended HIGHER compared to last week, and volatility was HIGH. Rates are in the low 7’s for most loan types without paying discount points. Paying discount points can get you in the high 6’s.

Powell Hints at Upcoming Rate Cuts!

As anticipated, the Federal Reserve did not cut rates during their highly anticipated press conference last Wednesday. Despite this, mortgage rates showed a notable improvement, underscoring a point that I often emphasize: the market tends to react in real time to future events. The recent drop in rates is primarily due to expectations of future cuts in September.

During the press conference, Powell indicated that a rate cut in September is highly probable. The next Fed meeting is scheduled for September 17th and 18th, and unless unexpected data alters their course, the first rate cut is almost certain to happen then. Powell stressed that the Fed bases its decisions on comprehensive data rather than individual reports and firmly rejected any notion that the Fed is influenced by political factors. “We never use our tools to support or oppose a political party, a politician, or any political outcome,” Powell stated. “Our actions are driven by the data, the outlook, and the balance of risks, not by any political considerations.”

Jobs Report Misses Expectations, Market Reacts!

Last Friday's July Jobs report was a real eye-opener! We’ve always said that bad economic news can be good for mortgage rates, and this report was no exception.

The numbers were way off from what the experts had predicted. Instead of the expected 175,000 new jobs, we only saw 114,000. To make matters worse, the figures from previous months were also revised down- once again. Additionally, the unemployment rate jumped from 4.1% to 4.3%. This has sent a clear message to the markets: the Fed might have no choice but to cut rates significantly in September to prevent a recession.

My team and I have been following this closely, and we feel the market’s reaction might be a bit overblown. Just a few days ago, we were eagerly searching for any hints from Fed Chair Powell about a possible rate cut in September. Now, it seems like the markets are bracing for emergency cuts. While we’re currently enjoying some of the best mortgage rates of 2024, don’t be surprised if we see a slight uptick once things calm down.

Black Swan Shockwave: Global Markets Brace for Impact

If you haven’t caught up on the news yet, chaos erupted in the Japanese stock market last night. Japan's Nikkei experienced its largest crash in history, plummeting 12.4% in just one day, which has sparked a massive global selloff. Stocks and cryptocurrencies have taken a nosedive as investors start to panic.

So, what triggered this financial turmoil? Last week, the Bank of Japan (BoJ) unexpectedly increased interest rates from 0% to 0.25%. This early hike caught the market off guard. Prior to this, traders could borrow Yen (Japanese currency) at no interest, convert it to USD (US dollars), and invest in stocks. It was essentially free money.

The problem arose when the rate hike caused the US Dollar to crash against the Yen. Traders who had borrowed billions in Yen to buy dollars could no longer cover their debts. Their only option was to sell off the stocks purchased with those dollars, triggering a market crash.

This situation might be the "Black Swan" event that could prompt the Fed to cut rates sooner than expected. The odds of an emergency Fed rate cut this week have skyrocketed to 60%! We might be on the verge of seeing some of the lowest mortgage rates in years. Get ready, things are about to get interesting!

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