Monday Morning Cup of Coffee takes a look at news crossing the HousingWire weekend desk, with more coverage on bigger issues.
All eyes will be on the Federal Reserve for the next few months as the United States looks to unwind its massive portfolio of mortgage-backed securities acquired during several quantitative easing bailout phases.
The Fed bought the debt to keep the secondary capital markets liquid, and will soon stop buying such debt next year, while at the same time reducing MBS holdings, hopefully in a market-orderly fashion.
But we’ll see.
According to a note sent to clients of Goldman Sachs, here's how its analysts view this next phase of the MBS market:
“We expect the FOMC to officially announce next week that balance sheet runoff will begin in October. As the Fed has already communicated extensively about its plan for a gradual and predictable runoff, we expect markets to focus instead on the outlook for the federal funds rate. The key question is whether the committee’s expectations for the federal funds rate have declined in light of the surprising deceleration in the inflation data since the start of the year.”
The Fed used QE in lockstep with its zero interest rate policy to prevent a global market collapse during the credit crisis. Since then, the Fed raised interest rates, without much fanfare, as it turned out, so in order for the same to happen with its MBS holdings, savvy financial reporter Donna Borak provides 3 important questions, in this article on CNN Money, everyone is asking.
1. Will Fed chair Janet Yellen stay or go?
2. Is another interest rate hike coming?
3. When will the Fed start getting its portfolio back to normal?
As for the first question: Yellen’s first term is coming to an end. However, Borak notes “It would be highly unusual if he didn't reappoint her: Most presidents keep Fed chairs for an additional term.” The "he" in that sentence is President Donald Trump, who reportedly took Gary Cohn, who currently serves as the White House National Economic Council Director, out of the running for Fed president recently.
And for the second two, well the aforementioned Goldman notes states the following predictions:
"Ultimately, there are three reasons why we expect only minor dovish changes. First, several influential FOMC members have highlighted that there is not yet enough data in hand to abandon the view that the economy is close to full employment and that diminishing spare capacity will gradually push inflation back up to the target. Second, growth momentum has remained very firm and while hurricanes will make the activity data noisier in the near term, they are unlikely to derail firm underlying trend growth. Third, financial conditions have continued to ease even as the FOMC moved to a path of quarterly tightening last December."
The breach at Equifax is so widespread that it may even be extended to... our pets????
I'm joking, of course, but still got a kick out of this evergreen story on how to find a pet-friendly city to move to, based on the town's — wait for it — FIDO score!
Don't find humor in that? Fine. Spoiler: the top city is Cincinnati. What's more, the data from WalletHub trademarks the term "FIDO score." It may be time to start exploring credit alternatives for our feline friends, especially since they sometimes come with the mortgage.
Too soon? Fine.
Speaking of risks to the financial system: "the world’s central banks can’t sit back and ignore the growth in cryptocurrencies as it could pose a risk to the stability of the financial system, according to the Bank for International Settlements," according to Catherine Bosley in this article for Bloomberg.
And by 'cryptocurrencies' we are really talking about the potentially overvalued booming market for digital money, bitcoin.
Why can't they ignore the growth? For one, "central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements."
So, in short, imitation is the sincerest form of flattery.
And finally a moment to fact check the fact checkers, in this article on mortgage-relief for victims of recent hurricanes, snopes.com refers to Fannie Mae and Freddie Mac as mortgage lenders. Oops. [Screen shot, below.]