To confirm what Jay said. Mortgage rates slid up today

The market leads the FED and always has. It's not "pricing in" a FED cut. The market is the efficient engine of reaction to the real world economy and forms a consensus price minute by minute of hundreds of millions of participants from foreign governments, to foreign central banks, to hedge funds, to everyday Joe's. Throughout history, treasury rates falling is clear indication that the FED is going to follow. That's because the FED is reactionary to maintain an illusion of neutrality while never having to make a decision that hasn't already been dictated by backward looking economic data that the market has already priced in.

If you want to know where rates are going and what the outlook on the economy is, ignore the FED. Follow the bond market. Nothing else matters.

The time to pay attention to the FED is when they say that they are going to be expanding their balance sheet, AKA "QE", AKA buying treasuries. This is their way of stepping into the market as the highest volume buyer and putting a ceiling on rates and floor on prices. This is how they expand the money supply and dilute the value of every dollar in circulation. QE is the only way the FED directly influences rates.

NM

TokinAg said:

---

You're leaving out the fact that the Fed provides guidance to set expectations on their future actions. They basically leave a bread crumb trail of what data points they're looking at, laying out their expectations for those metrics, and indicating their future actions based on those expectations.

The "reason" the market can preempt the Fed is because they're given the playbook ahead of time. The rest of what you said is fine, but I take issue with scapegoating the Fed while praising the market when it's a symbiotic relationship at best and a parasitic one at worst.

When everything goes to ****, people don't turn to the bond/credit markets to "fix" things.. they turn to the treasury and federal reserve.

---

So what bread crumbs did the FED give the bond market mid 2020 when the bond market took the 10 year yield from 0.5% to 1.9% by Feb 2022 while the FED stayed at 0%?

Because as you say, the market just uses the FED guidance. Yet not that time. I guess you can have it both ways? If what you say is true, then why is the market leading the FED for a year and a half?

Why did the 10 year yield start dropping in June 2007 from 5.28% to 4.78% by August 10th 2007, despite the FED stating in June that it would leave rates unchanged (from a flat rate going back 1 year) for "quite some time", and leaving rates unchanged all the way through the August 7th FOMC decision only to turn around on August 10th and start throwing liquidity at the system after the stock market started selling off?

See, it's easy to believe the tired narrative that the FED control the market. But a study of history shows the exact opposite. The FED is purely reactionary and lets the market dictate what they should do. Hence why so many talking heads constantly cry for the FED to act and only see it act once the data to support is far in the rearview.

The FED of the 70's and 80's that acted aggressive to stamp out inflation is gone. That FED was blamed for what happened to the economy, despite attempting to lead. Since then, the FED merely lets the market dictate its moves. A quick glance at a chart comparing the FED funds rate and market yields proves it out.

This current market has been dropping yields since October of 2023 with a brief upward stint earlier this year, despite no timeline from the FED until very recently and many months this year where the FED was visibly spooked that inflation was inching back up. In the April/May FOMC, they decided..

Quote:

---

In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.

---

Yet bond yields have been selling off since April 26th. What did the FED say in April to make that happen?

Sea Speed said:

---

Jay, as I said in my email last week, if there's an opportunity in the 4's in the future, get that paperwork ready!

---

Ditto

TokinAg said:

---

I'm struggling to understand why you're so invested in this idea that the "market" is so capable and the fed is so impotent.. I'm guessing there's some deep rooted philosophical/political agendas that you've espoused.

In any case, you provided your own answer in your first post, besides setting the fed funds rate, they also engage in QE and QT activities. The federal gov't also impacts markets through fiscal policy, specifically... inducing inflation through massive stimulus programs. Inflation causes yields to rise, as I'm sure you know.

It's crazy to me that you bring up "mid 2020 through 2022" as though COVID and covid related economic impacts and federal government stimulus didn't happen. There are externalities that can cause even the federal reserve (and capital markets) to be "passengers".

I've never said or implied that the Fed controls the markets... I've said that they share a symbiotic relationship.

I don't plan on replying to you anymore, it seems like you're yelling at your keyboard and failing to acknowledge reality. I'm happy to let you continue to live in your bubble and pretend that "free markets rule!" and "government sucks". Everyone is entitled to be wrong.

---

Bolded - So it was transitory as the FED implied?

I follow the market because the bond market is made up of all of the entities and individuals who actually participate in the buying and selling bonds, where higher demand lowers rates and vice versa. The FED "tries" to manipulate the market with it's policy, yet it always conveniently does so after the market has already moved in the direction the FED follows with. Sorry, I don't subscribe to the notion that the market is taking cues from a FED that is backward looking and almost always wrong. The 2020-2022 example was proof of that, and proof that the market doesn't take cues from the FED when the market clearly sees a reason to act. The FED wanted to stay at 0% for whatever reason, while the market started demanding significantly higher returns if they were to continue buying American paper.. and the market led the FED all the way up to 5%. The FED went higher and only stopped because the market was no longer moving higher.

I would ask you to tell me why we have a Federal Reserve that is supposed to maximize employment, minimize inflation, and smooth out recessions, if they have never been able to successfully do any of those over their history and have directly caused some of the worst market downturns in our history while at the same time being directly responsible for 99% of the value of the dollar deteriorating and destroying the wealth of the middle class since their inception. But that would first require a true deep dive into the history of financial markets, the FED, history in general, and the value of money, as well as you to respond back after insulting me and promising to not respond anymore.

So I guess, carry on. We can end this de-rail right here (that I started - fully acknowledge that). You can continue to watch what the FED does and I'll continue to ignore them while following the market. Hopefully, we both end up in a healthy place over time.

I really do not think we will get in the 4's this time, or at least not out of the high 4's but who knows!

Jay@AgsReward.com said:

---

I really do not think we will get in the 4's this time, or at least not out of the high 4's but who knows!

---

I've seen a number of guys in the mortgage business yelling on facebook that we will NEVER see rates below 5 again. And I'm like never is a strong word my man.

Jay@AgsReward.com said:

---

I really do not think we will get in the 4's this time, or at least not out of the high 4's but who knows!

---

Probably game at 5.25

Here's a chart of the average 30YR mortgage over time. The red box is where the majority of people who bought in the last 10 years are likely at. The yellow line is the 200 period exponential moving average which acted as resistance since the 1980's and is now support until proven otherwise.

It's pretty clear as day that the best mortgage environment in history is behind us. Could rates drop below 3% again? Sure. But I don't think it would last long as hyperinflation would take over the economy and we would likely see 2022 on steroids by 2026 or so. Based on the health of financial markets and likely cycle we are facing ahead, I think the greatest threat is significantly higher mortgages. I couldn't argue against anyone who needs or wants to buy getting a rate between 5% and 5.5%. If we do see 4's, like I said, I doubt it's for long. But anything can happen, and technical analysis on stuff like this is not as reliable as it is with stocks, so take this all with a grain of salt, even if you agree with the fundamental principles behind my outlook.

Furlock Bones said:

---

Jay@AgsReward.com said:

---

I really do not think we will get in the 4's this time, or at least not out of the high 4's but who knows!

---

I've seen a number of guys in the mortgage business yelling on facebook that we will NEVER see rates below 5 again. And I'm like never is a strong word my man.

---

LOL. Please.

I don't think I've ever seen HA call timing on a major market move. He tends to make predictions based on previous market moves and caveats most posts with something like "I can't say if or when this will happen but x,y,z makes me think we're in a for <prediction>.

He's one of the more respected analysts on the stock market thread and many of his reads have played out.

I thought I would bump this topic back to the top with the Fed cutting their overnight lending rate a .250% today.

And mortgage rates still rising.