Market Perspective - An Open Letter From Northpoint's President, Rich Dinges

Rich Dinges, President, Northpoint Mortgage, Inc. I will repeat the same opening that I used following the last meeting. “The Federal Reserve, as expected, left their key borrowing rate at 5.25-5.50%. There was also very minimal change to their written statement….” Chairman Powell’s press conference had the chairman repeating over and over that they are going meting to meeting in determining whether the current rate policy is sufficient to bring inflation to their target.

There was a great discussion on CNBC from the panel following the statement. Rick Santelli of CNBC stated that over five trillion dollars were poured into the market which gave us a sugar buzz which has yet to dissipate. He then proceeded to say that sugar buzz growth doesn’t lead necessarily to organic growth which is sustainable. He did voice a concern that global debt now exceeds 307 trillion dollars which may add pressure towards higher rates.

Paul McCulley, the former managing director of PIMCO provided an interesting analysis. He feels the Fed is leaving a perceived bias in place towards another hike, however he feels that the threat of that bias is being used to keep downward pressure on the market. Compared it to hearing over sixty years earlier from his father, “Don’t make me pull this car over”. The threat is being used to keep the market behaving as desired and during the press conference, Chairman Powell reinforced that the bias is still in place.

It has been a painful couple of years, but progress has been made. Inflation spiked to over 9% and has been brought down to 3-4%. The consensus is that the market is pricing in the expectation that the Fed is done raising rates and that lowering them will begin the middle of next year. The risk exists that they could be wrong and that the bias the fed maintains that they may need to raise again is more than just a threat. We had seen increasing mortgage rates which have recently leveled off and will hopefully soon shift to an improving trend. We will see better rates.