Powell Changes His Tune

Powell Signals Possible Rate Cuts 

Friday’s much-anticipated speech from Federal Reserve (Fed) Chairman Jerome Powell was the long-awaited signal that markets have been waiting for. The Fed feels that cutting rates may be appropriate.  

Powell acknowledged the slowdown in job growth that was seen in the Bureau of Labor Statistics (BLS) Jobs report earlier this month, saying that it was much larger than previously believed just a month ago.  

He also indicated that:  

• Employment risks are rising, and if they materialize, they could quickly lead to layoffs and unemployment.  

• It would be reasonable to believe that tariff-based inflation will be short-lived and a one-time shift in pricing.  

• Growth has slowed to about half of where it was over the first two quarters of 2025.   

Powell’s conclusion: “With policy in restrictive territory, the baseline outlook, and the shifting balance of risks may warrant adjusting our policy stance.”  Time to cut rates. 

Markets Rally; Eyes on September Data 

The markets rallied on Friday on this news, and mortgage rates notched a fresh low, matching rates in late September of 2024. The only potential headwind could come from the two inflation reports, Personal Consumption Expenditures (PCE) and Consumer Price Index (CPI), which will be released before the September 17^th Fed meeting. Additionally, another BLS Jobs report will be released on September 5^th. If these reports are favorable for rates, we will see the likelihood of a rate cut jump from its current position at 85% to near certainty at 100%. 

QCEW May Revise Jobs Down Again  

The BLS will also release an updated Quarterly Census of Employment and Wages (QCEW). If you remember, last year, this report showed that the BLS Jobs report had overstated jobs by more than 800,000 positions. It will be interesting to see if this quarter’s report continues the trend of slashing BLS’s numbers. All of this has the potential to be very good for interest rates. 

Fed Governor Lisa Cook Under Scrutiny 

Another interesting turn of events is that Fed Governor and voting member Lisa Cook, a Biden appointee, has been accused of mortgage fraud. This adds her to the list of other potential mortgage fraud targets, such as New York Attorney General Latisha James and California US Senator Adam Schiff. There are currently calls for Cook to resign from the Fed. It is unclear if the President has the power to remove her, though the law permits removal “for cause.”  If she were to resign or be removed, it would allow the President to appoint a new dovish (likely to cut rates) member to replace a hawkish (not likely to cut rates) member. 

Existing Home Sales Beat Expectations 

This week, Existing Home Sales numbers were a little better than market estimates. Sales rose 2% in July to an annualized 4.01M pace, while markets were expecting a slight decline of 0.5%.   

Despite the rise, this sales pace is still muted and well below the norm of 5 to 5.5M units. There is likely a great deal of pent-up demand waiting to come out as rates drop.   

The Median (middle of the sample) Home Price fell 2.4% from June to $422,400 and is flat year over year.   

Units for Sale was slightly up by 0.6% to 1.55M units. This leads to a 4.6 months’ supply, which is spot on with a “normal” market. Homes averaged 28 days on the market. 

Jobless Claims Continue to Climb 

Initial Jobless Claims rose by 11,000 to 235,000, a significantly elevated number.  

Continuing Claims rose 30,000 to 1.972M, the highest level since November 2021. There is definitely difficulty with finding a job once you lose it, and employers are hanging onto those they have.   

Looking Ahead 

Next week will be highlighted by the Personal Consumption Expenditures (PCE) report: 

Monday, August 25:  

• New Home Sales 

Tuesday, August 26:  

• FHFA and Case-Shiller Home Price Index 

Thursday, August 27:  

• GDP-Second Estimate 

• Initial and Continuing Jobless Claims 

Friday, August 28:  

• PCE Report 

• Chicago PMI 

• Univ. of Michigan Consumer Sentiment