Mortgage Rates Volatile After Yellen's Speech

All eyes were on Yellen's 10am speech from Jackson Hole, then all eyes were closed as traders fell asleep from boredom.  Yellen said nothing we did not already know, although one headline (about the case for a rate hike being stronger) sent rates initially higher.  Once markets realized they already knew that, rates moved back down to the lows of the week.

Comments from Fed Vice Chair Fischer followed shortly thereafter and pushed bonds back in the other direction.  Unfortunately, this move was exacerbated by lower volume and liquidity of a summertime Friday afternoon.  Too, markets could be justifiably concerned about next week's data putting a hawkish spin on a relatively neutral Yellen speech. 

Yellen must have a nice Chrystal Ball to be as optimistic as she appeared, but it is backward data. The problem with that thought is that the Fed has completely missed its forecasts for two years, over-estimating growth. Stan Fischer said the same thing, it’s a backward view.

Nothing from Yellen today has changed my view.  The Fed has little idea what will happen six months from now than my dog Nina. Fischer also said two rate hikes are possible. I am taking all bets on two and even one may be stretching it.  

Early this morning Fed Governor Jerome Powell (FOMC voter) said that the Fed should be patient with rate hikes.  The U.S. economy on solid footing despite H1 slowdown.  He continued on saying that he believes gradual tightening is appropriate.

Next week comes a lot of data that is headed by the NFP report on Friday that should clear up whether or not a rate hike will come at the September meeting. The 10yr broke out of its five week range to higher yields (1.63%) but not much, although from a technical perspective confirms the near term bearishness. The move above 1.60% was minor and still has not seen complete capitulation. The Fed is not to be taken seriously after all the misses over the last two years but from the perspective of not fighting the tape, as I have been saying all week – the rates we are seeing are still attractive.

In summary, the bigger question is: What Next?! What indeed!  As the case continues to be, one thing the Fed is serious about is the fact that they're "data dependent."  With that in mind, there is a ton of data next week.  All the normal "first week of the month" top-tier releases are coming out, including NFP on Friday.  If the tenor of the data clearly supports the Fed's ability to make a firmer commitment (either to hiking or waiting), this is when we might expect to see a more pronounced move outside the recent range.