Jackson Hole Speech Delivers
Powell's Jackson Hole speech was this week's only big ticket in terms of market movement potential and it definitely delivered. We haven't heard from Powell since 2 days before infamous August 1st jobs report. His tone logically pivoted to place incrementally more focus on the Fed's full employment mandate while repeating that the base case is for tariff-driven inflation to be--well--transitory. Combine that with his reminder that policy rates are still in restrictive territory and the takeaway was a subtle but obvious openness to consider a September cut. Traders were surprisingly surprised by this, thus making for a decent little rally in bonds. Gains arrived swiftly and hung out uneventfully through the close.
Market Movement Recap
09:56 AM Flat overnight and slightly stronger in early trading. MBS up 1 tick (.03) and 10yr down 1.8bps at 4.309
10:16 AM Sharp rally after Powell speech. MBS up 10 ticks (.31) and 10yr down 7.2bps at 4.254
01:25 PM Holding fairly close to strongest levels. MBS up nearly 3/8ths and 10yr down 7bps at 4.258
03:42 PM little-changed at strongest levels. MBS still up 3/8ths and 10yr down 6.7bps at 4.260
Heading into the week, Fed Chair Powell's speech at the Fed's annual Jackson Hole Symposium was only event on the calendar that held much promise for motivating any major movement in mortgage rates. Not only did it deliver on that promise, but it did so in everyone's favorite direction. Powell didn't pivot too much from his last major speech on July 30th. But in light of the weak jobs numbers that came out 2 days later, he understandably called out a shift in the balance of risk between inflation and employment. In not so many words, like several other Fed members have pointed out in recent weeks, Powell essentially said the labor market is looking weak enough to entertain a rate cut in the near future, even as the inflation outlook remains somewhat uncertain. The market began adjusting for this possibility on August 1st when the rocky jobs numbers came out. Today's speech was interpreted as additional validation of that move. With that, mortgage rates saw their biggest drop since August 1st, just barely beating out August 13th's lows to claim 2025's lowest spot. October 3rd, 2024 was the last time the average 30yr fixed rate was any lower. [thirtyyearmortgagerates]
Today's Jackson Hole speech gave Fed Chair Powell an opportunity to adjust his stance in light of much weaker jobs report that came out 2 days after the last Fed meeting. Powell had quite a bit to say, but the only thing the market really needed hear in order to facilitate a reaction was that the balance of risks may warrant adjusting policy. A close second was that tariff-driven inflation was unlikely to be a lasting dynamic given the downside risks to the labor market. Bonds rallied instantly on the release of the speech with short-term yields logically leading the way (due to their closer connection to Fed rate expectations). September rate cut odds moved back to the 90%+ levels seen earlier this week. 10yr yields are back in the middle of their August range and MBS are back near 2025's highs.
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Some Headwinds Ahead of Powell's Jackson Hole Speech
Thursday brought the week's only relevant econ data with 3 occasional market movers on tap. Their results were mixed, but the important development was that the inflation components of the Philly Fed and S&P PMI data agreed that price pressures are alive and well. This made for a weaker start during the AM hours and that weakness was exacerbated by comments from Fed's Hammack (who said current data doesn't justify a September rate cut). A super strong 30yr TIPS auction at 1pm helped push back just a bit (which is quite remarkable as this essentially never has an impact). In the bigger picture, bonds could still be classified as drifting sideways to slightly weaker in a narrow range. Friday morning's speech from Fed Chair Powell isn't guaranteed to cause volatility, but it's the week's only true top-tier event in terms of volatility potential.
Econ Data / Events
Continued Claims (Aug)/09
1,972K vs 1960K f'cast, 1953K prev
Jobless Claims (Aug)/16
235K vs 225K f'cast, 224K prev
Philly Fed Business Index (Aug)
-0.3 vs 7 f'cast, 15.9 prev
Philly Fed Prices Paid (Aug)
66.80 vs -- f'cast, 58.80 prev
S&P Manufacturing PMI
53.3 vs 49.5 f'cast, 49.8 prev
S&P Services PMI
55.4 vs 54.2 f'cast, 55.7 prev
Market Movement Recap
08:37 AM MBS are now down only 1 tick (.03) and 10yr yields are close to unchanged at 4.296 after being over 4.315 just before the data.
09:03 AM 10yr yields are back up to 4.312 (up 1.8bps on the day) and MBS are down 3 ticks (.09) on the day.
09:52 AM Weakest levels after PMI data. MBS down an eighth and 10yr up 3.3bps at 4.328
11:22 AM MBS down 5 ticks (.16) on the day 10yr yields up 4.5bps on the day at 4.35. Fed's Hammack comments are the driver of the most recent weakness
01:11 PM Some resilience after strong 30yr TIPS auction (never have we ever seen a 30yr TIPS auction move the market). 10yr up 3.4bps at 4.329 and MBS down 3 ticks (.09).
Watching Rates
Check our some recent articles and posts about current rates.
Heading into the week, Fed Chair Powell's speech at the Fed's annual Jackson Hole Symposium was only event on the calendar that held much promise for motivating any major movement in mortgage rates. Not only did it deliver on that promise, but it did so in everyone's favorite direction. Powell didn't pivot too much from his last major speech on July 30th. But in light of the weak jobs numbers that came out 2 days later, he understandably called out a shift in the balance of risk between inflation and employment. In not so many words, like several other Fed members have pointed out in recent weeks, Powell essentially said the labor market is looking weak enough to entertain a rate cut in the near future, even as the inflation outlook remains somewhat uncertain. The market began adjusting for this possibility on August 1st when the rocky jobs numbers came out. Today's speech was interpreted as additional validation of that move. With that, mortgage rates saw their biggest drop since August 1st, just barely beating out August 13th's lows to claim 2025's lowest spot. October 3rd, 2024 was the last time the average 30yr fixed rate was any lower. [thirtyyearmortgagerates]
In a world (like this one) where mortgage rates are dictated by bond market movement and where bonds take cues from certain economic reports, weeks like this one can be frustrating or boring. Until today, there haven't been any actionable economic reports to inspire a bond market reaction. Unfortunately, today's data was relatively unfriendly for rates, primarily due to inflation implications in two separate reports (Philly Fed Index and S&P PMIs). Bonds also care about comments from Fed speakers and there were headwinds on that front as well with the Fed's Beth Hammack saying the data don't currently support a rate cut at the September meeting. On a positive note, the damage to the bond market was minimal in the bigger picture. Thus, the impact on average mortgage rates was also minimal. While it's true that today's rates are the highest in nearly 3 weeks and 0.09% higher than the recent lows, it's also true that, apart from those 3 weeks, these are still the lowest rates since October 2024 and 0.13% lower than July 31st. [thirtyyearmortgagerates]
For the 11th straight business day, mortgage rates are very close to the levels from the end of the previous day. Over the past week, however, most of these small day-to-day movements have been microscopically higher. Today's is no exception. The net effect is that the average top tier 30yr fixed rate is up from 6.53% last Wednesday to 6.61% today. Even that is a fairly minor move in the bigger picture, but it would certainly make for a weaker rate quote if Wednesdays happened to be your mortgage rate shopping days. To put the overall change in specific, relatable terms, the average borrower would have to pay 0.4% in points to get the same rate quoted last Wednesday. This equates to $400 for every $100k borrowed. Today's modestly higher rates were in place before the afternoon release of the minutes from the most recent Fed meeting (3 weeks ago). The minutes didn't offer any major new revelations beyond those already seen in recent weeks from individual Fed speeches.
Mortgage rates are based on bonds and bonds, and bonds have some seasonality to them. This doesn't necessarily mean there's a reliable seasonal pattern for the direction of rate movement. Rather, it means that several weeks in August tend to be fairly forgettable in terms of excitement, volatility, and methodical movement. The 2 most recent weeks arguably fit that bill. Bonds (and, thus, rates) are still operating in the range seen in the 24 hours following the August 1st jobs report. Mortgage rates have been in an even narrower range than the broader bond market. For example, 10yr Treasury yields (often viewed as a benchmark for mortgage rate movement) are well over halfway back up to the levels seen before the jobs report. Mortgage rates, meanwhile, aren't even a quarter of the way back. Specifically, 10yr yields were around 4.40% and fell to around 4.20% after the jobs report. They're now back up to 4.30% and were as high as 4.35% yesterday. Mortgage rates were 6.75% before the jobs report and fell as low as 6.53% afterward. They're at 6.59% today (top tier scenario, average). There have been no major influences for rates so far this week and there aren't any major threats on the calendar of scheduled events until Friday at the earliest. This doesn't mean rates can't move until then, only that they are not going to be moving in response to scheduled economic data.
