US MBA Also Predicts "No Interest Rate Hike Within the Year"...Dovish Outlook Added

"The Federal Reserve's (Fed) rate hike cycle is coming to an end." The Mortgage Bankers Association (MBA) in the U.S. also confirmed a dovish (preference for monetary easing) outlook that the Fed will not implement any additional rate hikes within this year. Fed officials have also been continuously making dovish remarks, emphasizing the need to maintain rates at the current level.

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According to the MBA on the 16th (local time), Mike Fratantoni, Chief Economist and Senior Vice President, stated at the MBA annual meeting held in Philadelphia the day before, "We expect the Fed to maintain rates at 5.25-5.5%." He added, "We do not expect the Fed to raise rates in November," and "There is almost no chance of a hike in December either."

This assessment differs from the Fed’s earlier indication at the September Federal Open Market Committee (FOMC) meeting that one more hike could occur within the year. Regarding this, Chief Economist Fratantoni said, "Listening to speeches from Fed officials over the past two weeks, even the more hawkish (preference for monetary tightening) members are saying that rising Treasury yields are doing the job, and there is no need for further hikes," adding, "The Fed is now in a position to achieve its 2% inflation target without doing anything more."

Since March last year, the Fed has raised the U.S. benchmark interest rate 11 times, bringing it to the highest level in 22 years. Fratantoni noted, "The cumulative effects of tightening have not yet been fully felt," and predicted, "If we move further from here, growth will slow." This serves as a warning that excessive tightening after already raising rates above 5% could unnecessarily trigger a recession.

Additionally, Fratantoni expects the Fed to cut rates three times next year. However, he added that this rate-cutting cycle might not proceed as quickly as anticipated.

He also forecasted that the recently surged 10-year U.S. Treasury yield will fall below 4% within the year. The benchmark 10-year yield had previously surpassed 4.8%, marking the highest level since 2007. He added that as the 10-year yield enters the neutral rate range around 3.5%, it will be good news for mortgage rates as well.

Dovish remarks have also been confirmed daily from Fed officials with FOMC voting rights. Patrick Harker, President of the Philadelphia Federal Reserve Bank, said in a speech at the MBA annual meeting that morning, "We need to give the economy some breathing room." He mentioned the disinflation trend and the recent sharp rise in Treasury yields, stating, "I believe we are at a point where rates should be maintained at the current level." He also expressed concerns about the potential impact of the auto strike and the resumption of student loan repayments on consumer spending.

Charles Evans, President of the Chicago Federal Reserve Bank, also reaffirmed his previous support for holding rates steady in a foreign media interview released that day, saying, "The decline in U.S. inflation is not simply a temporary phenomenon." Known as a prominent dove within the Fed, he had previously expressed that the U.S. economy is on a Goldilocks path and that no further rate hikes are necessary.

Market Insider reported that as Fed officials have been making dovish remarks recently, the JP Morgan Hawk-Dove Index, which measures Fed sentiment, has shown a significant decline. This indicates a reduced likelihood of additional rate hikes. In a recent economist survey published by the Wall Street Journal (WSJ), about 60% of respondents believed the Fed’s rate hikes have ended. Only 23.4% expected the tightening to end after an additional hike in November.

This week, many Fed officials, including Chair Jerome Powell, are scheduled to speak. Ahead of the blackout period when public comments are prohibited, several key Fed figures will speak, including John Williams, President of the New York Federal Reserve Bank and considered the third most influential Fed official; Thomas Barkin, President of the Richmond Fed; Neel Kashkari, President of the Minneapolis Fed; Governors Christopher Waller and Lisa Cook; and Vice Chair Philip Jefferson.