Macro Crosscurrents: Inflation, Interest Rates, and International Relations | 11.3.25

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Welcome to Optimal Insights, your weekly source for real-time rate data and expert capital markets commentary brought to you by Optimal Blue. Let's dive in and help you maximize your profitability this week.

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Welcome to Optimal Insights. I'm your host, Jim Glennon, Vice President of Hedging and Trading Client Services at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode. Welcome everybody. Welcome to November. It is definitely fall outside. Appreciate you being here. We have a lot to talk through today. Some very timely topics to discuss here with Alex and Kevin.

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get into a bit of a market update. Although there's not really any economic data to speak of, we did have the Fed announcement last week and the press conference that came after that. Obviously, you're aware at this point that there was some rate activity on the heels of that and a bit of a bomb or two that was dropped by some of the commentary afterwards. Still following the FHFA social media story where

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Bill Pulte has hinted at or made some comments about potential changes, hopefully big changes to mortgage pricing coming out in his discussions with Barry Habib and just trade deals, more trade deals with China and some other countries. So we'll discuss what's going on there. And before we get into it, just in the way of data, just to level set where we are today, OBMMI 6.15. So despite the Fed cutting a quarter point last week, we actually had rates go up a little bit here in the interim.

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The 10 year is at 411, which is again, also higher than it's been recently. We've been in the threes a little bit the past couple of weeks, so we're about four and an eighth now. Still seeing solid volume coming through, seeing some reifies, cash out in, rate and term. It's still just a healthy dose of purchase business coming through as usual too. So we're still seeing volume 20, 30, 40 % above where we've been over the past year. So healthy lock volume coming in.

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our PPE. So let's go check in with Alex and Kevin and see what's going on in the market. All right, team. As usual, we got going a little bit without recording, so we decided we'd hit the button and continue this conversation. Today, just one long segment, we're going to do just a bit of a recap of what's been going on with the markets, with global issues, with the Fed, with trade wars, all of it. A lot to think about, but not a lot of data to go off of. We're in this kind of weird

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flying blind zone, if you will, when it comes to economic data, yet the world still turns and money still exchanges hands and we have some things to consider as we go into the holiday season during a government shutdown. So where should a group like us start here, Alex? think just let's talk about the Fed that did happen last week. That's not something that depends on the government being open. I was going say, yeah, let's talk about the one data point we...

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the end of the year and into: 2026

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Chairman Powell, right? Which I think folks weren't maybe expecting and we've been theorizing why he might've said what he said, but he basically said in ensuing press conference after the announcement of the quarter point cut, said that there's not, like don't expect a fully baked in quarter point cut in December. We're far from that or it's not guaranteed, far from it. I think it was the way he said it. Far from it. Yes. Yes. Far from it was what...

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what the direction will be in: 2026

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cuts in their current form will resolve the issues currently facing the economy, which he cited as being that there's stresses in the labor market, but that these stresses are kind of like one-time technological changes that everyone keeps talking about and that the shift that's going to occur in white-collar work. And he doesn't think that traditional monetary policy, as we understand it, is going to be able to address that. Yeah, it's interesting. And also, because it kind of poses a...

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a counterweight to Myron, who's out there calling for 50 basis point cuts, the last two go-arounds. It'll be interesting to see if either side going forward can increase the size of their camp, uh if you will. Then the comment from Powell, just ruined everything for lower rates, if you're rooting for lower rates, but we saw the 10-year climb after his comment.

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It's still up above 4.1 % as of the last time that I checked. But I also wanted to provide a little bit of context, I think, in terms of what might be going through his head. And particularly, I picked up on some of this myself and incorporated into a write-up that I did for the mortgage scoop. James Kleiman was gracious enough to ask for my thoughts on the upcoming Fed meeting and-

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My take was that there's a surprising amount of consensus around what's going to happen. You start to think about, okay, the next meeting is now, it was maybe 45 days or so between the last meeting and the next meeting in December. To have that level of consensus, were seeing 90 plus percent of market participants saying that they expect the Fed to cut in December.

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I can imagine if you're sitting, if you're there at the Fed and you're still waiting for a lot of this data that hasn't come due to the shutdown and you're still waiting for November, it might be pretty uncomfortable with that level of consensus around what you're going to do if you don't feel that level of confidence. So having that sort of shot across the bow comments, I think is probably

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just trying, Jerome Powell, trying to give the Fed a little bit more flexibility to see where things stand in a month and not have uh expectations so high for what they're going to do. Yeah. I mean, essentially you're saying that it could have been felt by the entire Fed that their hands were tied. you look at the CME, you follow the money and it's like a 98.5 % chance that there's a quarter point cut each time with the last two meetings. And then again, going into December, that you're backed into a corner and you

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if data does start coming out or if there's a shift in the labor market, you don't have a lot of opportunity to change your mind because it seems like you're completely pushing against the grain. I think some folks took his commentary, they were mad, angry about it, really. Obviously so. It felt like maybe he was dropping a bomb to cause a problem or maybe, like you said, he's just trying to keep options open. If you look at CME now,

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It's a very different picture. It's sent a shockwave all the way out till mid next year where there's some money placed right now that rates won't move till like the spring, which was not the case three days ago. for sure. so, again, also to provide a little bit of historical context for this to you, I recently read a book called The Price of Time by Edward Chancellor, which kind of details the history of interest rates, but also focusing on the

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ndrew Ross Sorkin's new book,: 1929

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to actually really have an effect to bring down asset prices intentionally. They were very open about that, that there was an asset bubble and they're looking to bring down asset prices. That obviously leads to a lot of pushback from folks who are asset holders. As time has gone on, it does feel like the Fed even marginally putting their neck out there talking about, there is still uncertainty. does lead to a lot of criticism, but the flip side of that is you

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one could argue over the last 20 years or so, the Fed has sort of had a backstop in terms of asset prices and that there's a lot of argument for is, they sort of overstepping their role in doing that? When I hear Jerome Powell speak and say something like that, and yes, it did sort of send a bit of a shockwave through the markets, but relatively speaking, I think it's fairly minor. And I do think that we'd need to give the folks at the Fed a little bit of flexibility to be able to.

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to call out the market every now and then and say, we still have a lot of time left before the next go around. Just kind of looking at the history there from where it used to be to where it is now. I'm not sure that I'm on board with a lot of the criticism there. Yeah. I don't want to ruin the second half of that book for you, but keeping or lowering asset prices didn't end well. Yeah. Someone's got to tell me what happens. I think we underestimated how bad

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deflationary pressures can be. We spent about 10 years digging out of that hole. But yes, I would agree with you. And Powell did give a few nods even to asset prices. And I believe he said that he doesn't necessarily believe that AI is a bubble where I think a majority of people really think it is when you look at the valuations of some of the AI chip makers and the others that are in the AI space. But I think he looks at it as being needed investment in what the future looks like. And I thought that was a

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of a refreshing comment to come out of the Fed who typically just kind of stays away from talking about equities and business earnings. Yeah, yeah, for sure. We've done a few on the Fed, a few full podcasts on the Fed and this is, I don't know, we may have another one coming up here, but this has been a good 10-minute stretch on just what's going on right now with that bit of a bomb that was dropped on Wednesday during the presser. So what else is happening around, Alex? We got a bunch of stuff here. could

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we could touch on, mean, you without having an actual BLS report for jobs, we're looking at kind of looking at corporate layoffs in the news a little bit more closely. It's hard to tell whether there's just more in the news because there's lack of other indicators of what the job market is doing, or if we're really seeing more layoffs or if it's because it's the big names, right? It's Metta, it's Target, it's GM.

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Yeah, as we talked about last week, these names capture headlines, one, because they're big numbers that we're seeing, and two, their household names company-wise that we can see doing layoffs. Hiring is done onesie-twosie, as they say, when departments need people. But when we see these wide-ranging layoffs that are massive, it tends to be quite scary. As I noted on last week's webinar, I don't

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The numbers that we're seeing from the states who are still collecting unemployment data, we've seen like a slight uptick, but nothing too crazy. So I, again, I want to defer to the numbers, as I said last week, and these are big numbers and for anyone that's lost their job, I feel for you. But in regards to where the unemployment rate is at, it seems to be not too bad. And in addition to that, we still see the sluggishness in hiring, but it doesn't seem that in the

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30 plus days now that we've had the government shut down that we've seen catastrophic edge to employment. A macro shift. It doesn't feel like this is a macro issue. There's companies like you mentioned Target. Target has been struggling a little bit to keep up with Walmart and some of the online retailers. They needed to cut double digit percentage of their workforce, presumably as a result to maintain earnings and their stock price reflects that. I think a lot of these layoffs also come with a bump in their stock price.

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ight at the same time in late: 2022

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taken shape since the end of: 2022

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where, and maybe not so much on the layoff side, but just in terms of hiring, fresh talent, training, a lot of that might be potentially being invested into training tools to be able to account for some of that manual labor. But another big argument that's out there is the higher borrowing costs. And so the era of cheap money came to a very quick and dramatic close.

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And I don't know personally that I've got a really good pulse on which one of these may be more impacting the labor market. There's obviously a lot of speculation out there, but it's unfortunate that these two were timed exactly the same, right? Because it sort of robs us of the opportunity to really understand the impact of each of those factors. Right. It's probably a bit of both of those things. The economy is transforming. We know that much, but what's the bigger impact?

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nybody will say it started in: 2022

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Electricity is expensive. All these things require potentially to run deficits or to borrow money or generally invest in infrastructure and that the brakes are on a little bit still by way of the Fed and the banks where it's not, there's nowhere to get really cheap money right now. Yeah, for sure. The intersection of both of those things, the AI cap expenditure that's out there and these crazy amounts of money that are being invested into compute, if you look at the graph for that, it's exponential.

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And that's clearly not sustainable long term, right? can't, you're not going to go from spending 30 billion a year to a hundred billion a year to one trillion to a hundred trillion. It's just eventually the number you're going to get capped out there. It's unclear exactly where we are in the curve. we still early or is it a little bit later? And all of that has very big implications for, to tie it back to the original point that we were making here of the labor market. There's still a lot we don't know. sure.

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All right. Maybe switching gears a little bit. Last week we talked about some of the social media posts from Bill Pulte discussing some meetings he was having with Barry Habib and some others to talk about loan pricing. I haven't seen any updates on that over the past week, but presumably that's still out there. Just seeing, I think Pulte discussed some other topics, if you will, but it has not come back to that loan pricing issue.

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So we're seeing higher rates this week than before the Fed. we've obviously talked about that a lot on this podcast, what the reasons are for that. But a lot of that has to do with what we talked about earlier, which was some of the commentary from the Fed. But anyway, I just want to keep you apprised of that. think as soon as we hear more from the FHFA, if there's any major changes there to LLPAs or G fees or pricing in general, we'll certainly discuss that on the pod or even maybe an emergency podcast midweek.

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Right. And let's not forget too, the bomb that was dropped earlier this year around VantageScore and uh allowing VantageScore to be used with the agencies. Before, really there was kind of a pricing structure around that. so, have they been working on new sets of LLPAs that they're related to VantageScore that they're going to roll out? How is the whole landscape around that shifting? So I can imagine there's probably conversations that are happening.

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both around just LPs in general, but also specifically around that vantage score piece so that we have a better understanding of how these things are to be priced. Sure. Yeah. think that's been a threat that's been out there for a while, that there's going to be a shakeup in the credit rating agencies and how each one is priced versus the other. I don't know. I haven't been shown the case that says that that's going to make

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things is a ton better for a ton of borrowers, but I'm optimistic, I suppose, and willing to be convinced as I think we all are, but there's still been no real communication from the FHFA about how exactly they're going to handle that. So you think this might be part of this announcement that's going to come out hopefully soon? Yeah. I mean, if, I assume that, I would have to assume that they've been working on that since that announcement came out. I there's been a bit of outreach.

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just in general in terms of how to tackle those things. obviously we don't have an LLPA grid for Vantage score at this point. Then all of sudden we have this other bomb that was dropped around, hey, Pulte and Barry Abebe looking at LLPAs together. And maybe there's some desire to look at everything together. Maybe not. But I do know that there's one reason for this not coming out very quickly potentially could be that there's already been conversations ongoing about how to restructure LLPAs in general.

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Okay. More to come on that. Meanwhile, yeah, mean, the Fannie Mae, quite a bit of shaking up going on there just in terms of their leadership structure. More so with Fannie than Freddie, I would say right now. Alex, do you have a good grasp on what's going on there? You know, it's very much like the very heavy, you know, Bill Poulty thing from last week. It's, uh you know, we know what's happened on the ground. We know that the CEO who was a Biden appointee has

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departed from the CEO role of Fannie Mae. But uh aside from that, we don't have a lot of color on who the next person might be, um likely a board member and likely someone who uh will be more accommodating to implementing any policies that want to come down from the FHFA. I think we have the avatar, the shadow of who it might be, but who the face is, I think is yet to be determined.

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As typical, it's going to be someone who's friendly with the administration and that probably makes sense, but we just don't know who that person is yet. So just a lot of things hanging in the balance right now with the FHFA and the two, know, and Fannie and Freddie makes for interesting fodder, but we don't really have a lot of good answers yet and what that's going to mean. And then you have the connection to home builders. You know, you'll get the comment every once in a while from Pulte that he's bringing in the home builders to have discussions about how we can improve.

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affordability from that side, from the supply side. Meanwhile, we have this huge, you know, we have the meeting in China between Xi and Trump. And then we also have the Supreme Court decision on whether tariffs are even legal. That's an interesting component. Ways away probably still from a decision, but the hearings begin this week on Wednesday. So it's the start of the process. And I just expect it to be not the tariffs haven't been in the headlines, but I would expect to be a little bit more dramatic, maybe some true social posts to come out of it if

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you anything leaks out of the courtrooms. Yeah, that's definitely a big one. It's something we've been talking about all year. Um, and I think the, I think either way, whether they land on it being constitutional or it being unconstitutional is going to have wide ripple effects. Um, just because it's been such a driver, uh, across markets all year long. Right. Yeah. I mean, it's, it would, it seems like it would be a big, big shock to the system if they, they label them unconstitutional. I know.

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you know, in the past, or when there are things that are more difficult decisions that sometimes they can find sort of an interim, like a middle ground as well. But, you it will be interesting to see what the opinions are like there. A lot of these things end up being, you know, very like archaic, very technical, you know, very legalese in terms of how they're looked at, you know, in terms of standing and other things. you know, ultimately, I think the tariff story so far is

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Worst case scenarios for tariffs, in my opinion, feel like they are not coming true at this point. We haven't seen a major acceleration in inflation. There's been a bit of an uptick and it does sound like companies still have more pass-through to do to recoup the initial hit that they received from tariffs so that the price of tariffs weren't rolled out all at once.

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sort of held off for a while on any increase and slowly they've been increasing. And I think there's still the question of, they end up re-anchoring inflation expectations higher? And it seems like that's still possible to some extent, but worries about inflation from tariffs or tariffs leading to inflation overall above like 5%, 6 % seem to be not coming true, which is great. I mean, that's great for

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the overall economic situation, but still just given the fact that the landscape is changing so much. also wonder the flip side of that too, right? If inflation is not ticking up so much, does that potentially give the administration a little bit more confidence to be more aggressive and push that boundary a little bit farther? I think just still a lot uh of uncertainty there in the overall outlook. Yeah. The tariff story has been

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mean, ingrained in our brains at this point, but it has worked out a lot better so far than the worst case scenarios that some even accomplished economists were putting out there. We have not seen a runaway for inflation. We are seeing receipts come in. We're seeing revenue come in through customs and into the treasury. So we're making some money on these deals. it is, I imagine, jeopardizing a ton of the president's time and

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foreign leaders and lawyers and all that, but there are hundreds of billions of dollars coming in without a major shock to the system. mean, long-term, it'll be interesting to see how this plays out in terms of our relations with other countries. if there's a, when there's a different administration in the White House, if they turn a 180 on this thing or they've embraced it by then, but I don't know, short-term does feel like the worst fears were overblown and we're kind of, but the negotiation phase has gone on longer than I

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I had expected, but again, this is uncharted territory in the last 100 years. So is very interesting to follow it. Yeah, yeah, for sure. And to be clear, yeah, I certainly don't fault anybody for putting out more kind of worst case projections. mean, to your point, Jim, this is a grand experiment that we're living through. So economists will be studying this period for probably generations. there probably will still be things that we learn from it, both

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potentially good and bad in terms of the overall impact that may or may not make it more likely for future administrations to pursue aggressive tariff policies. All right. Did we miss anything, gentlemen, that was important?

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We covered everything. For this next few weeks, we're watching out for I'd say any additional discussions out of the Fed, obviously the trade policy, the Supreme Court hearings, just everything we talked about here and something to come out of the FHFA. It feels like there's been a lot of social media chatter. Something has to come out that is more groundbreaking than a new CEO. It feels like something's

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coming or they're just kind of all, everybody fired up about nothing. One more thing on that topic is let's not forget that they're working through loan limits as well. So they've got a lot in their plate right now. So we'll see exactly when it comes through. But it's that time of year, right? We shouldn't see a huge change there because this has not been a huge year for home appreciation, but still we would expect either, we expect some kind of increase going into next year unless the FHFA decides that

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the argument that raising the loan limits only exacerbates the affordability issue. they decide to put a cap on it. That would be an interesting development that's been at least discussed and inferred in the past. Yeah. And yeah, the other thing to call out there too is just the difference in home price appreciation or depreciation across the country. So you have your standard areas. So it's like, does it

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Does it make sense at some point maybe to get even more granular than they're getting right now? But who knows? It's just uh very interesting, kind of that like K-shaped housing market. We've talked about the K-shaped where folks in the upper sectors of the economy are doing better, folks in the lower sectors of the economy are doing worse. Seeing that play out both in terms of housing, housing price appreciation, as well as in the overall economic situation as well.

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earnings reports, and savings and all that. And a lot of that has, again, has interplayed back to rates. Like a lot of this does tie back to short-term rates, long-term rates and how they have different effects on different demographics of people. Yep. You know what I would be interested in actually would be if someone were to do more of like a geographic level analysis in terms of

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a lot of these, the national metrics that we see like unemployment, inflation, income, et cetera, to like, if we were to start thinking about, you know, the US regions as their own sort of independent economies and you know, what things look like in different areas. I'm sure that's out there that could be consolidated together, but you know, the presentation of that in sort of one, you know, the different US economies that exist, I think would be interesting, anyways. Yeah, might be good idea for a pod. I mean, the BLS has that data.

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It's just a matter of slicing it up the way you're talking about by demo. Yep. All right. Good stuff, gang. Alex, Kevin, thanks for talking today. Lots to think about. Appreciate your time. Okay. Let's wrap this thing up. Thank you so much, Kevin. Thanks a lot, Alex. That's it for today. Join us next week for another episode of Optimal Insights where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube.

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You can also find each episode on all major podcast platforms. Thanks again for tuning into Optimal Insights.

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