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Vital Statistics:
Stocks are lower this morning on no real news. Bonds and MBS are up.
Neel Kashkari isn’t convinced rate hikes are over. “Undertightening will not get us back to 2% in a reasonable time,” Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, said in an interview with The Wall Street Journal on Monday. He is awaiting further data. “I am not ready to say we are in a good place.” Note that Kashkari has generally favored more aggressive responses to the economy, pushing for lower rates during the ZIRP period and higher rates now.
Chicago Fed President Austan Goolsbee thinks we could be on a “golden path” of lowering inflation without causing a recession. “Because of some of the strangeness of this moment, there is the possibility of the golden path … that we got inflation down without a recession,” Goolsbee said on CNBC’s “Squawk Box.” “If that happened … it would just be a continuation of what we’ve already seen this year, which is unemployment up very modestly, while inflation has come down a lot. … That’s our goal.”
The “strangeness of the moment” is the residual effects of a firehose of fiscal stimulus in 2020-2022. The Fed has never been able to hike rates like this without causing a recession in the past. It is a “this time is different.” take.
Credit standards continue to tighten, according to the Fed’s Senior Loan Officer Survey. “For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government residential mortgages, for which standards remained basically unchanged. Meanwhile, demand weakened for all RRE loan categories. In addition, banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs). Moreover, for credit card, auto, and other consumer loans, standards reportedly tightened, and demand weakened on balance.”
The survey mentioned commercial real estate as a continued pain point.
Mortgage delinquencies picked up in September, according to the Black Knight Mortgage Monitor. The DQ rate increased to 3.29% which was up 12 basis points from August and 13 basis points from a year ago. This was the largest increase in the past 2.5 years. 30 day DQs rose by 5.1% making it the fourth consecutive monthly rise, while 60 day DQs have risen for 6 months in a row. Note DQs are still below pre-pandemic levels, but it looks like rising rates and a weakening labor market are starting to have an effect.
Rocket reported third quarter numbers that beat expectations. Closed loan volume fell 13% YOY to $22.2 billion. Gain on sale margins increased by 10 basis points to 2.79%. Rocket is guiding for a seasonal slowdown in the fourth quarter which is to be expected.
It looks like the Fixed Income Clearing Corporation is greasing the skids to up margin requirements for MBS. The volatility in the bond market is causing them to increase their risk assessments.
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