You're Missing The PLOT On This Week's News

I'm sending this a day early because tomorrow is Juneteenth and you deserve to go into the holiday weekend with a clear head about what just happened.  And because a lot happened, and probably something else is going to happen tonight and this blog is too long as is.

A peace deal. A Fed meeting. A new Fed Chair's first press conference. A dot plot that nobody saw  (or I should probably say, nobody wanted to see) coming. And two quotes from industry leaders this week that I think tell you more about where this market is going than anything the Fed said.

The Peace Deal First

Sunday morning the U.S. and Iran announced a peace agreement. The formal signing is scheduled for Friday in Switzerland. Gasoline prices fell below $4 a gallon for the first time since March, and oil dropped to $83 a barrel. The 10-year Treasury yield fell to 4.46% Monday morning and the S&P 500 opened up nearly 2%.

That is the headline. But here is the nuance.

The 10-year yield falling back to pre-conflict levels is going to take longer than most people think. The first target is 4.46% - which is where we are now. Then 4.35%. Then 4.24%, which is where we were before things escalated. Getting there is possible but getting there fast is unlikely. The Strait of Hormuz does not reopen overnight. Mine-clearing, infrastructure repairs, security guarantees - that all takes time. The oil price improvement is real. The rate relief will follow as the supply chain unwinds… over weeks and months.

The good news: the worst rates of the year are most likely behind us. The 10-year peaked at 4.68% during the conflict. Mortgage rates hit 6.75%. We are already off those highs. If this deal holds, that ceiling has been established.

Warsh's First Meeting: The New Sheriff said some Weird Shit

Wednesday was Kevin Warsh's first FOMC meeting as Fed Chair. The vote was unanimous - 12-0 - to hold rates at 3.5% to 3.75%. That part was expected.

What nobody fully anticipated was everything else.

Warsh released a dramatically shorter policy statement. Gone was the forward guidance language. Gone was the easing bias. The statement, as Warsh put it, is "curt." Shorter. Simpler. No promises about where rates are going.

He also declined to submit his own rate forecast to the dot plot - making him the only FOMC member whose rate outlook is officially unknown. And he announced five task forces to overhaul the Fed's operations covering communications, the balance sheet, data sources, the labor market, and - most relevant to us - the causes and measurement of inflation.

Warsh was emphatic at his press conference: "The Fed will deliver price stability. The commitment to deliver is strong, unanimous, and unambiguous. And that's an important message we've missed for five years. And we're going to fix that."

Now here is the dot plot headline that moved markets.

Nine of eighteen FOMC members projected a rate hike before the end of 2026. Six of those nine projected two hikes. The median estimate for the fed funds rate at year end moved to 3.8% - up from 3.4% in March projections.  If you aren’t assuming why Warsh didn’t include his own projections, you’re missing the plot here.

Three months ago the Fed was projecting a cut. This week they projected a hike. The 2-year Treasury yield jumped 16 basis points to 4.21% -- its highest level in over a year. The Dow fell 507 points. The S&P 500 dropped 1.21%.

The market's reaction was not subtle.

The Curious Thing about Trump

Here is the part I want to sit with for a minute because I think it is the most interesting subplot of this entire week. President Trump nominated Kevin Warsh to lead the Fed in hopes he would push for lower interest rates. Trump has joked that he would sue his Fed chairman if he does not lower borrowing costs.

And then Warsh walked into his first meeting and signaled a rate hike.

Trump appointed Warsh to cut rates. A wartime spike in energy prices pushed rate cuts off the table. And now Warsh is delivering a message that is the exact opposite of what Trump wanted - while doing it unanimously, confidently, and in the most hawkish first meeting a new Fed Chair has had in recent memory.

I find this genuinely fascinating. Warsh was supposed to be Trump's rate cut guy. Instead he walked in and said - in so many words - we are going to fix a five-year inflation problem and we are going to do it regardless of what the political environment wants.  Damn, I’m getting more curious about what his personal forecast on that dot plot would have been…

Whether this is good policy or bad policy is above my pay grade. What I can tell you is that it signals something important for the rate outlook: the bond market has been predicting at least one rate hike for months. This week the Fed finally caught up to the bond market. That alignment is actually stabilizing, even if the message itself is uncomfortable.

The Fed is not cutting rates to make anyone happy. They say they are going to fight inflation until it is at 2%. And right now it is at 4.2%.

The last quote you need to hear…

In the middle of all the Fed drama on Wednesday, Bill Banfield - Chief Business Officer at Rocket Mortgage - said something in a CNN interview that you and I basically have to pay attention to.

"Home sales are responding more right now to labor market strength than rate moves. If the labor market remains healthy, buyers will continue to enter the market regardless of whether the next move from the Fed is a cut, pause or even a hike."

Say what bro?

The Chief Business Officer of the largest retail mortgage lender in the country just said that home sales are no longer being driven by rates. They are being driven by jobs.

This is exactly what our data has been showing for months. U.S. employers have added an average of 188,000 jobs per month over the last three months. The May jobs report added 172,000. Unemployment is holding at 4.3%. The labor market is not breaking. And according to Rocket -- the company that processes more mortgages than anyone - that is what is actually moving buyers, not the rate sheet.

This reframe matters enormously for my buyers.  For how realtors should be advising their clients.

If a buyer is waiting for rates to drop before they feel confident enough to act - the Rocket data suggests that strategy has a flaw. The buyers who are moving right now are moving because they have jobs, they have income, and they have decided that waiting is its own kind of risk. They are not waiting for a rate number. They are responding to their own economic reality.

That is the Confidence Tax beginning to lift in real time.

Two Forces Pulling in Opposite Directions

Here is the tension this week created that I need you to sit with.

On one hand: the peace deal removes the primary driver of the inflation spike we have experienced since February 28th. Oil down means energy prices down means CPI down over time means the Fed has less reason to hike.

On the other hand: consumer prices are up 4.2% year over year in May - the highest annual increase since April 2023. PCE inflation is running at 3.8%. That data does not care about a peace deal signed Sunday. It reflects what happened before Sunday. And it is what the Fed is staring at right now.

Goldman Sachs put it plainly: "Our base case remains that the Fed can just about avoid hikes, but the path is narrow and there will be a high premium on the incoming inflation data."

Narrow is the right word. We are threading a needle here. The peace deal is the hopeful force. The inflation data is the resistant one. And Warsh is the newest variable.

What This Means for Buyers and Sellers Right Now

Let me bring it home.

If you are a buyer, here is your honest picture. Rates are not dropping dramatically this week or next. But the ceiling has likely been established. In my opinion, the peace deal removes the worst-case scenario. The Rocket data tells you that the buyers who are winning right now are not the ones waiting for a better rate - they are the ones responding to a healthy labor market and a motivated seller.