Additionally, with Tax Day approaching, it is not uncommon for individuals to wait until the last moment to sell stocks or bonds in order to raise funds. There has also been an outflow of foreign investment in the markets, contributing to the current volatility. However, such periods of instability are typically temporary.
Furthermore, the recent actions taken by the government suggest that the White House is responding to the legitimate concerns of Americans regarding tariffs and job security. With speculation that trade deals will eventually be completed, the market has taken a breather for now after a historically crazy period of volatility
A dovish Fed president
During the middle of the day on Monday, Fed President Waller presented an argument in favor of cutting rates more quickly if the labor market shows signs of weakening. This perspective emphasizes the importance of prioritizing labor stability over inflation concerns. As a result of his statements, the 10-year yield experienced a further decline throughout the day.
From Waller’s remarks: If the tariff-induced slowdown is significant and threatens a recession, “I would expect to favor” cutting sooner and faster than previously thought.
When Federal Reserve presidents emphasize labor concerns over inflation and the markets respond calmly, it seems that if the worst happens to the economy, the Fed will step in and make sure one of its dual mandates is met by providing maximum employment. Their focus seems to be shifting from merely restoring the Fed Funds rate to a neutral position to adopting a more accommodative stance. This approach could potentially help us either prevent a recession or navigate our way out of one.
As many are aware, one of my preferred indicators for assessing recession risk is tied to the housing market, which typically benefits from lower interest rates.
Further remarks from Waller on Monday: “With a rapidly slowing economy, even if inflation is running well above 2%, I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs in raising inflation are expected to be short-lived.”
Again, it’s labor over inflation.
Conclusion
Today, the market appears relatively stable, with various factors contributing to a fall in the 10-year yield alongside an increase in stock prices. I understand this period can be challenging for you and your clients, but I’m here to clarify any questions about current developments. While market headlines can sometimes create uncertainty, it’s essential to recognize that the U.S. has mechanisms to navigate potential downturns.
As of today, mortgage rates have declined. However, we need to understand the reasons behind this movement. Can we get more headlines that can cause chaos? Yes, it will happen, but the government has levers to pull when needed, especially for the housing market.