Powell Avoided Throwing Cold Water on Rate Outlook. Bonds Approved

Today’s gains ended up being all about Powell’s press conference. While there were a few potentially friendly comments (current rates in high end of neutral range, recent job gains overstated, no decision yet on January, inflation coming down), we can also consider that Powell simply avoided the same sort of hawkish reminders seen in the last press conference.  On a day where bonds had already been selling fairly aggressively for 2 weeks, this could be all the market needed to breathe a sigh of relief and reinforce the ceiling of the prevailing trading range. All in all a fairly tame Fed day reaction, but one with a happy ending nonetheless. 

Econ Data / Events

Employment costs Q3

0.8% vs 0.9% f’cast, 0.9% prev

Market Movement Recap

08:46 AM Slightly weaker overnight and little-changed so far. 10yr up 1.1bps at 4.197. MBS up 2 ticks (.06).

11:29 AM Best levels of the day. MBS up 7 ticks (.22) and 10yr down 2.4bps at 4.162

02:40 PM No major volatility since Fed announcement.  Slightly weaker as Powell begins speaking.  MBS still up a quarter point. 10yr down 1.3bps at 4.176

03:09 PM MBS up 3/8ths and 10yr down 4.1bps at 4.145.

The Fed cut its policy rate by 0.25% today and mortgage rates moved lower after the announcement. That said, those two developments are not related. In fact, there was no movement in the bonds that underlie mortgage rates when the rate cut was announced. Instead, the market (and rates) moved in response to Fed Chair Powell’s press conference. While there is a mistaken belief that such press conferences “always” result in upward pressure on rates, today shows they can go both ways. Key comments that may have helped: Powell: Job gains could have been overstated in recent months Powell: Growing evidence that inflation is coming down Powell: Rates are now in a high range of neutral The reference to “neutral” means the Fed Funds Rate is near the levels that should neither help nor hurt the economy. Being in the higher end of that range means there could be room for another rate cut or two in 2026. This possibility was already reflected in the rate forecasts that came out with today’s announcement, but the market appreciated hearing it from Powell. Up until Powell’s press conference, mortgage rates had been little changed from yesterday. Afterward, most lenders made mid-day changes resulting in the lowest rates of the week.

Seasonally adjusted mortgage application activity rose 4.8% last week, according to MBA’s Weekly Mortgage Applications Survey for the week ending December 5. Unadjusted applications jumped 49% from the prior week, reflecting a rebound following the Thanksgiving-related slowdown. The Refinance Index surged 14% from the previous week and remains 88% higher than the same week one year ago—another strong year-over-year showing as borrowers respond to modest rate improvement, particularly in FHA products. Purchase activity was softer on a seasonally adjusted basis, slipping 2% from the prior week. Unadjusted purchase applications increased 32% week-over-week due to the holiday comparison and are running 19% above last year’s pace, supported by gradually improving affordability and inventory conditions. “Compared to the prior week’s data, which included an adjustment for the Thanksgiving holiday, mortgage application activity increased last week, driven by an uptick in refinance applications,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Conventional refinance applications were up almost 8 percent and government refinances were up 24 percent as the FHA rate dipped to its lowest level since September 2024. Conventional purchase applications were down for the week, but there was a 5 percent increase in FHA purchase applications as prospective homebuyers continue to seek lower downpayment loans. Overall purchase applications continued to run ahead of 2024’s pace as broader housing inventory and affordability conditions improve gradually.”

A federal court cannot modify a preliminary injunction to compel the acting director of the Consumer Financial Protection Bureau to request funding for the agency, the Department of Justice said.

The company’s latest funding announcement caps off a year of tailwinds that propelled growth for home equity investment platforms and related lending products.

Forty percent of Americans planning to buy or sell a home in 2026 worry about a potential market crash, according to a new report from Clever Offers.

The decision in a New York case that is also undergoing federal review puts pressure on related parties to get things right within a statute of limitations.

Democratic senators are calling for Senate Banking Committee Chairman Tim Scott to compel the acting director of the Consumer Financial Protection Bureau to testify.

Wednesday is All About Dot Plot and Powell

Bonds lost ground moderately and logically on Tuesday in response to the JOLTS data. From here, this week’s volatility potential hinges on the Fed. Fed Funds Futures suggest that there’s been no change in rate cut prospects for Wednesday’s meeting.  It remains a nearly a 90% probability and thus a non-event when the cut is announced. The more important events will be the 2pm ET release of the dot plot (individual Fed member forecasts for the Fed Funds Rate) and the 2:30pm press conference with Fed Chair Powell.  While it may be fashionable to hold the cynical view that Powell’s pressers “always” hurt rates, that’s certainly not the case and we have no way to know if it will be the case on Wednesday. At the very least, the bearish set-up over the past 2 weeks should tell you that anything can happen (considering Fed rate cut days have often pushed back against the prevailing trend in rates). 

Econ Data / Events

ADP Employment Change Weekly

4.75K vs — f’cast, -13.5K prev

CB Leading Index MoM (Sep)

-0.3% vs -0.3% f’cast, -0.5% prev

JOLTs Job Quits (Sep)

3.128M vs — f’cast, 3.091M prev

JOLTs Job Quits (Oct)

2.941M vs — f’cast, — prev

USA JOLTS Job Openings (Sep)

7.658M vs 7.2M f’cast, 7.227M prev

USA JOLTS Job Openings (Oct)

7.670M vs — f’cast, 7.658M prev

Market Movement Recap

10:50 AM Sideways to slightly stronger overnight, but now weaker after JOLTS data. MBS down an eighth and 10yr up 1.5bps at 4.178

02:10 PM Weakest levels. MBS down 6 ticks (.19) and 10yr up 2.2bps at 4.185

04:17 PM Drifting out at weakest levels. MBS down 7 ticks (.22) and 10yr up 2.2bps at 4.185

Mortgage rates were surprisingly steady on Tuesday with most lenders roughly in line with Monday’s levels. Why surprising?  Because the bond market was noticeably weaker and bonds dictate day to day mortgage rate movement. In Tuesday’s case, we can actually reconcile the steadiness with the timing of bond market movement. Specifically, bonds didn’t lose ground until after the 10am release of the Job Openings data from the Bureau of Labor Statistics. Most mortgage lenders consider bond market levels before 10am when setting rates for the day. The implication is that if bonds are at the same levels tomorrow morning, the average lender would set rates higher. Tomorrow afternoon brings another potential source of volatility in the form of the latest Fed announcement.  The most important thing to understand about tomorrow’s probably Fed rate cut is that it is NOT a mortgage rate cut.  In fact, mortgage rates have been more likely to move higher following recent Fed cuts. Even then, the cut itself is not the news the market is waiting for. Rather, traders are interested to see each Fed member’s rate outlook via the quarterly release of the Fed’s economic projections. In addition, every Fed meeting includes a press conference with the Fed Chair and bonds have often made the biggest moves in response. Bottom line: the rate cut means nothing for mortgage rates. Volatility will come from the 2pm ET dot plot (the chart that shows each Fed members’ rate outlook) and the 2:30pm press conference.