Powell Signals Shift in Fed Policy: Rate Cut on the Horizon 🗣️

Hello everyone! While the summer might feel like it is hanging on with the heat this week 🔥🔥, we’re also seeing some heated changes in the housing and mortgage industry.

Pumpkin Spice lattes might be back in full swing, however, things are far from cooling down! Let’s dive right into what’s happening and what you need to know!

Read time: ~4 minutes

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

Powell Signals Shift in Fed Policy: Rate Cut on the Horizon 🗣️

During his speech at the Jackson Hole economic conference on Friday, Jerome Powell made it clear: "The time has come for Fed policy to adjust." This statement has solidified expectations of a rate cut in September, with market confidence at 97%.

Now, the big question is: how significant will the cut be? Current odds suggest an 80% chance of a 25 basis point reduction and a 24% chance of a more substantial cut. Powell mentioned that while a rate cut is likely, its timing and scale will be guided by upcoming economic data, shifting outlooks, and balancing risks.

On inflation, Powell feels more assured that it is on track to return to 2%. Yet, I believe we could see inflation making a comeback within the next year, especially considering that shelter costs have recently increased. Any disruptions, like supply chain issues or global conflicts, could trigger inflation spikes in certain sectors. And let’s be honest, has anyone noticed prices for goods and services dropping lately?

Surprise: 818,000 Jobs Didn’t Happen After All 🤦‍♂️🤦‍♀️

It turns out the U.S. economy wasn’t as robust as we believed. The U.S. Labor Department just revised its data, revealing that from April 2023 to March 2024, there were actually 818,000 FEWER jobs created than initially reported.

So, what went wrong? The initial job figures are estimated from surveys of roughly 119,000 businesses and government agencies, capturing only about 30% of U.S. employers. To fill in the gaps, the Bureau of Labor Statistics (BLS) uses a "birth/death" model.

Picture it like running a lemonade stand: if you open a new one, that’s a “birth”; if it shuts down, that’s a “death.”

Since it’s impossible to check in with every single business, the BLS uses patterns and statistical models to estimate changes in job numbers.

But as more accurate data becomes available—like state unemployment tax filings—these initial estimates get revised. And this time, the revisions were way off the initial numbers, showing 818,000 fewer jobs.

And it’s not over. This is only the first big revision, and the numbers for April 2023 to March 2024 are scheduled for another update in February 2025.

Existing Home Sales Near Historic Low

According to Redfin, July’s existing home sales numbers were the lowest for that month since 2012. We're currently looking at about 4.1 million homes sold on an annualized basis. To give you some context, during the housing boom of 2021 and 2022, we were looking at nearly 7 million homes sold annually.

Looking at the data, it seems like around 4 million homes sold per year might be the bottom for existing home sales—it’s unlikely we’ll see it go much lower. Earlier this summer, I speculated that 2023 could mark the low point for the housing market, and the current stats are beginning to back that up.

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