Mortgage rates have done almost nothing but move lower over the past 4 months. The first Fridays in August and September account for about half of the total drop thanks to weaker results in the jobs report. Since the September 5th jobs report, rates have held a sideways-to-slightly lower range that’s resulted in several additional “lowest since” headlines. There’s nothing special about today in that regard. Bonds (which dictate rates) happened to improve, so rates inched to another 11+ month low. Today’s levels aren’t appreciably different than last Friday’s.  Volatility is a bigger risk over the next two days thanks to economic data tomorrow morning and the Fed announcement on Wednesday. 

“Someone posted that they had just made synonym buns. I replied, ‘You mean just like the ones that grammar used to make?’ I am now blocked.” That was sent to me by an economist; yes, they have senses of humor. Did you know that the Federal Reserve Board employs more than 500 researchers, including more than 400 Ph.D. economists, who represent an exceptionally diverse range of interests and specific areas of expertise? (I wonder if anyone yells, “Is there a doctor in the house?” at staff meetings.) This week’s focus will be almost entirely on the Federal Reserve. The central bank’s monetary policy committee will deliver its seventh interest rate decision of the year on Wednesday. The Fed has stubbornly held interest rates steady since ending 2024 with a series of cuts, but now with the labor market showing continued signs of cooling and inflation remaining sticky, it is a sure thing that the central bank will restart its policy easing process and drop overnight Fed Funds by 25 basis points, which in turn should move the discount rate lower (the rate at which the Federal Reserve lends money to financial institutions, including commercial banks, thrifts and credit unions). (Today’s podcast can be found here and this week’s are sponsored by CreditXpert. The all-new credit optimization platform that helps you close more loans. CreditXpert is committed to making homeownership more accessible and affordable for ALL. Today’s features an interview with Potomac Consulting’s Dan Varroney on why the Federal Reserve should cut rates 50-basis points this week due to weakening labor markets and recent inflation data.)

For all the time we spend pushing back on the notion that the Fed Funds Rate is a root cause for volatility in longer-term rates, that push-back always carries a notable caveat: Fed Funds Rate expectations definitely have a direct correlation with longer-term rates.
There are two reasons those expectations can change: markets are either assuming the change due to economic data or markets are reacting to a change in the Fed’s reaction function. Fed speeches and especially the quarterly dot plot (a summary of each Fed member’s base case rate expectations) account for changes in the reaction function.
This is why the dot plot can be such a big market mover.  It also causes volatility because the market spends 3 months trying to get inside the Fed’s head and the dots let the market know how good of a job they did. 
Bottom line: with a fairly big shift in labor market metrics over the past 3 months, Wednesday afternoon’s dot plot is this week’s focal point for potential volatility. 
Bonds are starting the week slightly stronger after holding fairly steady in the overnight session.

Federal Reserve Governor Lisa Cook described an Atlanta property at the center of a lawsuit over her attempted ouster as a “vacation home,” according to documents viewed by Bloomberg News.

The federal regulator terminated the wholesale lender’s FHA approvals in six jurisdictions because of certain elevated default and claim rate data.

Roof damage can reduce a property’s value and loan security. Lenders must know the warning signs that indicate major structural and financial risks.

Make the right lending decisions by being informed and knowledgeable on the impact of flooring during appraisals, upgrades, and resale evaluations.

Homes for sale inventory reached pre-COVID levels for the first time in years, while contract activity continued to soar last month, HouseCanary said.

The Mortgage Bankers Association leader cited past objections on anti-competitive grounds as Trump administration officials showed signs of progress on reform.

Incidental, Inconsequential Weakness Ahead of Fed Week

Bonds began the day in modestly weaker territory and yields are heading out right where they started.  In fact, yields are also right in line with the opening levels from Monday.  This broadly suggests the market got where it was going after the jobs report and is now waiting for the next big shoe to drop. The other way to view this entire week is as an opportunity to book profits and cover shorts on the recent “steepening” trade (which favored buying 2s over 10s). Indeed, 2yr yields mostly sold off this week relative to 10s and today was the only real exception. Either way, there was no concrete cause and effect in the news or econ calendar, so chalk it up to “position squaring ahead of next week’s Fed day.”

Econ Data / Events

Consumer Sentiment

55.4 vs 58.0 f’cast, 58.2 prev

1yr inflation expectations

unchanged

5yr inflation expectations

3.9 vs 3.5 previously

Market Movement Recap

10:41 AM moderately weaker overnight and holding mostly sideways so far. MBS roughly unchanged and 10yr up 3.8bps at 4.063

02:18 PM Holding sideways all day.  MBS up 1 tick (.03) and 10yr up 3.9bps at 4.065

03:41 PM Heading out with 10s up 3.3bps at 4.059 and MBS still up 1 tick (.03).