Mortgage Rates Outlook, July 15, 2024 — What Is the 'Trump Trade'?

Today’s market

One-Liner

Last Thursday’s consumer price index (CPI) may have changed the direction for mortgage rates. Many observers believe it made possible a September Federal Reserve rate cut and potentially one more this year. We may find out how likely that is this afternoon during a noon (ET) speaking engagement for Fed Chair Jerome Powell. Yet, the assissination attempt on Trump over the weekend could move rates higher, for reasons we’ll discuss.

What’s Driving Mortgage Rates?

It’s July 15 today. And the last time mortgage rates rose was on July 1, according to Mortgage News Daily’s archive.

That’s quite a run of improvements. But, if last week’s CPI has the effect many expect, it could be the start of more consistent (though probably gentle) falls.

Of course, plenty could go wrong. And we’ll need consistent economic reports between now and any rate cut, including tomorrow’s retail sales data and another inflation report due July 26.

But, so far, the economy seems to be slowing (per the jobs report) just as inflation is cooling close to the Fed’s 2% target for it.

The Fed

And the Fed’s been hinting recently that it’s refocusing on the slowing economy as it becomes less worried about inflation. That would slam the central bank’s policy into reverse: from quantitative tightening back to quantitative easing. And it would normally spell cuts to general interest rates, which tend to be good for mortgage rates.

So, Wall Street will listen closely to all four senior Fed officials who have speaking engagements this week. Mr. Powell has the most influential voice, but others are scheduled to speak tomorrow and on Friday.

Few expect a cut to general interest rates on July 31 after the next meeting of the Fed’s rate-setting body, according to the CME FedWatch tool.

But a signal that day from “the Fed” (or more formally, the Federal Open Market Committee or FOMC) that it’s expecting to make such a cut on Sep. 18 could be a powerful tonic for mortgage rates. After that, we might see another cut on Nov. 7 or Dec. 18 — or maybe even both.

The Trump Trade

Watch out for one potential fly in the ointment. A Wall Street Journal e-newsletter this morning warned: “Bets on a Trump victory in the November presidential election have increased sharply, data from betting marketplace PredictIt show. That has put the 'Trump trade' back in focus for investors.”

The Financial Times recently quoted Calvin Tse, head of macro strategy at BNP Paribas, to explain what the Trump trade is: “The Trump trade is a US rates curve steepener. Trump’s policies are largely inflationary (tariffs, looser fiscal), while at the same time, he will probably appoint a more dovish-leaning Fed chair.” A hotter economy and more inflation are bad for mortgage rates, but markets expect these factors with Trump in office.

President Joe Biden’s performance at the recent presidential debate and the attempt on former President Donald Trump’s life over the weekend have both renewed Trump trades. And it may explain why we’ve been seeing increasing yields on 10-year Treasury notes overnight, which are likely to feed through as higher mortgage rates today unless Mr. Powell distracts markets.

What To Watch This Week

So, the main things to watch out for this week are:

• Today’s speech by Fed Chair Jerome Powell

• Tomorrow’s retail sales report for June — Markets expect those to slow to -0.2% from May’s +0.1%

• Tomorrow’s speech by Fed Gov. Adriana Kugler

• Wednesday’s reports on industrial production and capacity utilization — Markets expect both to contract

• Friday’s speeches by New York Fed President John C. Williams and Atlanta Fed President Raphael Bostic

There are other reports on this week’s calendar, but those rarely affect mortgage rates much. For a full list, check out the MarketWatch Economic Calendar.

Forecasts

Fannie Mae had until recently been predicting that 30-year, fixed-rate mortgages would average over 7% during the last quarter of this year.

But its June forecast brought good news. And it now expects that average to be 6.7%.

Better yet, it thinks that rate will fall very gradually during each subsequent quarter, reaching 6.3% during the last three months of 2025.

The Mortgage Bankers Association is even more optimistic. It forecasts those rates will be down to 6.6% during the last quarter of 2024 and will average 6.0% one year later.

So, there are good grounds for hoping that mortgage rates will decrease over the long term.

But, absent some unexpected economic bombshell, they’re unlikely to do so quickly. Indeed, we may be in for a positively glacial slide.