[David] Thank you so much, Matt. So let’s get started into the commentary. Alright, Bill, you heard the reports. Let’s get into some discussion about what your thoughts are. We are thinking, what’s really encouraging for me is there’s the possibility of what happens after we get to 3.80 and that there is another downshift on the elevator. We go into the basement a bit, go below 3.80, at least he opened the door and suggested that I want to go there. But I also heard that he goes, we can see 4.80 again too. He’s been saying that wide range for a while. That’s all well and good, but wanna get your thoughts on how are you reading them, the T leaps.
[Bill] So, first in the big picture and then we’ll narrow into this week. We talked about it before and just to go on the record sometimes your timing is fortuitous and sometimes you’re really smart. When I made the comments last week about Europe instability, I did not know that the French government was gonna fall apart 30 minutes later. But that’s still the common theme, right? Europe is still a mess, both politically and economically. And you know that last talked about and I think in the right order of, what could be the driver of materially lower rates. So let’s say materially lower is going below, 3.80 by a significant amount. It’s gonna be European economic crisis driven. It’s gonna be significant weakness in China, or it’s gonna be significant recessionary move in the US. A wildcard because even when something’s happening, you can never trust the data Europe is where a material likely to come from, and they’ve got a ton of problems, but let’s be really clear, their problems are a lot of debt and government unwillingness to make the hard decisions, to resolve the problem, right? before we start sitting back and smiling and cheering on their demise. We’re in a better position right now because we’re not quite as bad as Europe is. But by no stretch is the US in a strong position and they could just be ahead of the curve. You do have to watch that shorter term. So if you really want the Fed to significantly lower rates, then stop going out to restaurants.
[David] Stop going to restaurants, spending any money. So that’s funny.
[Bill] So one of the things, because there is all this economic data and Matt is great getting into the details, right? But when you start talking about, CPI is up 0.3, but unrounded, it was almost up 0.4. You can be a data wonk and still not have any idea what it’s really telling you. One of the things that I’ve picked up on reading from folks is looking at the category of its discretionary services and specifically its food away from home, right? Because it, if you think about it. If folks are feeling uncomfortable about their financial situation, that’s pretty much gonna be one of the first things to go and that is holding up both in terms of activity and the ability for restaurants to increase prices is still a measurable, significant part of the inflation outlook. Number three, it’s really something that gives you an inflationary outlook that is pretty much outside of the tariff round. Yes, there are things in there that are impacted by tariffs, but it’s pretty much off by itself. I think that, so that folks and I agree, have been pointing to as a inflation is still running hotter than the Fed wants it to be, it’s number one. Number two, it gets back to when the Fed right, and they’re gonna cut. But are they, is their messaging that they are normalizing rates or they, is their goal to cut rates and that starts to get in? that’s the simple question to be, are they gonna cut two times, three times, four times? They think that’s gonna be.
[David] Or by how much this time?
[Bill] I would be shocked if they do more than a quarter this time. Agree. I think some of the, the data after the employment report pulled back on that and inflation is still running significantly above their target. Now whether you agree with the 2% target or you know where they’re headed, that’s a separate, separate discussion, but if that’s their, if that’s their benchmark, that’s what they’re gonna be thinking. But also, normalizing rates can still be 75, a hundred basis points. And I think that’s what Powell started to telegraph Jackson Hall. That was effective from the market’s perspective. That was an, again, we talked about was an eighth cut, right? So outside of the Fed funds rate, they’ve already brought rates down across the curve. I think a quarter makes sense and I think I would pay a lot of attention to the press conference. In how dot plots are explained because again, for everybody, the dot plots are set by the governors before they walk into their two day meeting. So it is truly their outlook at a given point in time. And they couch it with the, it’s all data dependent, et cetera. But to be, the bigger part of it is if they’re each putting them out there independently, so that’s not part of their consensus building in the meeting but then coming out of the meeting is more of an interpretive view of what each person’s individual position looks like. So lot, a lot will come in the commentary versus just what, whatever the headline,
[David] What Les talked about specifically in Les’s comments. He talked about the unrest in Europe, the failures, the weakness in Europe, both politically, economically and I think that’s the bigger picture than our own dot plots here at home. At least that’s what I heard. Did you hear that?
[Bill] Yeah. The reaction to anything happening in Europe is gonna be more, longer and treasury based than what the Fed themselves is doing. That’s where the Fed could wind up being behind the curve. If something significant happens surprise, in Europe and rates drop overall, then you know the Fed funds becomes the outlier. But, they’re certainly not gonna, that’s not something that can be predicted in advance and based off of US economic data.
[David] Yeah. the reason I’m bringing up the European situation is the tragedy, the assassination of Charlie Kirk brought about in Kittle and I, our breakfast early this morning says, did you see how many people were rioting, not rioting, demonstrating what, marching its support of Charlie Kirk and that something just how sad and sick of there. Kittle, talk about that. And then I’m wondering, does that factor into European dis unrest?
[Kittle] I just brought up the fact that when they took the satellite shot of the number of people that were marching and was well over a million, and that’s in Europe. That’s in London, right? So my comment before we went to the rally or the march in Europe or in London would be, I couldn’t add anything to what Bill just said which was great and articulate where I want to go. And my comment is, you and I both are sitting here in Boston. We’re at the TMC conference. This is our 20th conference. It’s our third largest. Think about that. There’s a lot of people. It’s almost 360 people here in Boston. And the mood is very upbeat with the drop in rates down to 6% below 6% on government loans. Okay. I was talking to a couple of them at breakfast this morning and they’re going, we’re getting some refinances. They had a tough August, but right now volume’s picking up. It is refi on Govi. F-H-A, V-A, U-S-D-A. It’s a very upbeat mood here right now. That’s where the rubber’s meeting the road in our industry. So we can talk about rates, we can talk about the Fed and everything else, but the bond market has improved, rates have dropped, and moods are up not down right now. Bill, when you look at the European I think our data, our dot plots here could leave us kind of insecure about where interest rates are going. We got enough dot plotting that’s going to justify lower rates because I think we still have some, like Matt was saying, economy’s still fairly hot. And so I look at this, I think the pressure’s gonna come for downward pressure and rates is gonna come out of a weak Europe and God knows whatever happens to China. And whether or not we’ll believe it. But you’re first, I think right now the phrase that’s being used more and more is stagnation. Which acknowledges you definitely have weakness developing in the job market, and you’ve definitely got inflation that is higher and stickier than the Fed would like that is clearly you step back. That is a very difficult position for them because they’ve they gotta be able to lead either way but I think that’s where they’re going to cut because you go back to Jackson Hole, what Powell acknowledged is that the normalizing rates means that rates have to drop from here. The question on the table is, where is normal? Is it 50 basis points, 75 basis points, a hundred basis points? picking up over what period of time? Yeah. And over what period of time. Five. And how fast do they need to move? And one of the other things that I saw over the weekend is, the good news for the overall economy right, is private borrowing is in really solid shape in terms of the amount of debt. But the flip side of that is one of the things the Fed is concerned about is if the rate environment becomes too attractive and borrowing picks up that’s where you then have inflation coming back strong. So they’re navigating through a tough window, but I think they’ve been very clear that they’re navigating on a downward trajectory.
[David] Yes. We’re it is more downward. It feels like that. Marc your thoughts.
[Marc] Let me give you my couple minutes on this. We’ve talked more about rate in the last six months or so than we have in the three years prior to that, and we keep talking about it and keep talking about it, and we talk about there’s a little bit of business. Mr. Kittle mentioned a little bit of misses on refi, but I think the guys out there that control all this don’t really think the right way. The housing market and buying and building houses control so much of our economy today. From building materials to things people buy to put in their houses to all this stuff and if the little bit of talk right now and maybe a quarter percent rate is only gonna help refis, it’s not gonna necessarily help out the people on the purchase side that really need it, which is what we really need in this country right now to help the economy. So I’m just so sick and tired of the dialogue they have going on it and can’t make a move and, we can all sit back and come back at a plus or minus to why things don’t work or do work or whatever, but we gotta have a better system, a simpler system, a system that people understand and can rack to and not, analyzing everything the way we do it in this country. We’re in analysis paralysis as far as I’m concerned. Everybody wants to talk about it and nobody wants to do anything about it. And I’m really frustrated about it. I don’t know how many other citizens are, I know a lot of their mortgage bankers are, so we’re just gonna see, I have to see how this goes, but that’s just my opinion for today and I’m sticking to it.
[David] Thank you Marc. One of the things that David Kittle and who we have had on here is Bob Simpson is a good friend and we’re gonna be having him back on because Marc, he is proposing something that I think is brilliant. It’s not gonna be well received, but we’re gonna wait to have him on. There is more innovation. Be talking, I’ll be speaking at the HousingWire Mortgage Banking Summit next month first, and it’s on the seventh next month. And there’s a servicing just the day before. So I’ll be there speaking at it. I’m speaking with Adam, with Polly, and I’ll be interviewing him. And we’re both talking about some of the innovations coming in. I think we have a lot of things gonna be contributing to our mortgage banking future here in the months, days, months, weeks, more and more weeks and months ahead. And it has to do with Allen’s report, and that is the technology component. But then we have the weakness in Europe. Our economy is hotter than a lot of people with surprise. So I’m thinking more of the external circumstances that are gonna be impacting rates. Allen gonna get your segment a little bit, but do you wanna weigh in on rates here?
[Allen] Everybody’s focused on do they have the right tech stack or I don’t wanna spend money on technology. I’ll see it when I there. The uncertainty. Yeah. Yeah, when volume changes. So as a technology vendor right now, you have some challenges. Everybody’s claiming they use AI in different ways. Everybody’s claiming they have customization and personalization, which has always been a sore point for lenders not being able to be agile for changes. Yeah, and everyone wants a lower cost. So the reality is technology is definitely affected by rates. But the show must go on, so to say. And we must continue to invest in technology and make our process better. For example, Freddie Mac just put out new guidelines that, you need your technology to support because of your pipelines. Just gotta continue to focus on technology and hold a blind eye to the rate market in a way and continue to make sure it works.
[David] Then just continue to get loans done. Yeah. We’ll get I wanna get, I got a whole bunch. I’m really excited about your segment coming up. We’ll get into some of that in a minute.