Bonds Market Eyes On Jackson Hole For Direction On Interest Rates
It was a dramatic week of market swings, surging covid hospitalizations, international conflict, and conflicting messaging by the Fed on the course of monetary policy. The equity markets were very choppy and a look at the averages was not representative of the draw-down many equities experienced this week. Volatility rose, retail sales softened, and the prospect of continued QE increased as the Delta variant continues to create havoc. While a full shutdown of our economy is unlikely, the virus is slowing down certain sectors of the economy. Economists have lowered GDP estimates and consumer sentiment has waned. Many analysts believe the next few months could see volatility rise as the modern world struggles to normalize around Covid. Homebuilders’ sentiment also dropped. How long the Fed can be ultra-accommodative? Inflationary pressures have squeezed margins on everything and as a result, we’re seeing increased pricing across the country. Housing prices are at peak levels and are outpacing income growth.
All eyes will be on the Jackson Hole economic symposium next week in Wyoming when Fed chair Jerome Powell takes the stage to speak on monetary policy. There have been fairly strong sentiments supporting the reduction of QE support of our economy. However, the combination of a poor sentiment reading, international tension, and advancing Covid infections may conspire to reshape the Fed’s view to wait longer. The downside of waiting is inflation. While the inflation readings do show some signs of inflation leveling off, most Americans across the country are feeling the pinch. Small businesses are also hurting as wage inflation eats into profits.
On the mortgage front, the volume has moved to more niche products. Interest rates have been at near historically low levels for over 19 months, and by now many Americans have either purchased or refinance their homes. This has shifted the focus of loan origination to more complex, non-traditional lending. This aligns well with Insignia Mortgage’s expertise working with specialized local lenders, boutique banks, and credit unions to provide these types of complex loan packages for our clients.