Logan Mohtashami: Does the Fed have tariff derangement syndrome?

HousingWire

On today’s episode, Editor in Chief Sarah Wheeler talks with Lead Analyst Logan Mohtashami about the ongoing battle between the Federal Reserve and the White House over mortgage rates. The two also discuss the CPI report and purchase applications.   Related to this episode:   ⁠Why purchase application data is up 20% year over year | HousingWire⁠  https://www.housingwire.com/articles/why-purchase-application-data-is-up-20-year-over-year/  ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠   The HousingWire Daily podcast brings the full picture of the most compelling stories in the housing market reported across HousingWire. Each morning, listen to Editor in Chief Sarah Wheeler talk to leading industry voices and get a deeper look behind the scenes of the top mortgage and real estate stories. Hosted and produced by the HousingWire Content Studio.

Transcript

00:00Welcome, everyone. My guest today is lead analyst Logan Motoshami to talk about the

00:09ongoing battle between the Federal Reserve and the White House over mortgage rates. Plus,

00:14we'll talk about the CPI report and purchase apps. Logan, welcome back to the podcast after

00:19our amazing time at the gathering. Sarah Wheeler, I've got something to say to you. I want you to

00:28tell everyone that's listening, what was the name of the golfing event that we had, which was

00:36sponsored? What did they call it? What was the marketing right on the golf course?

00:45We had this amazing, we had some very fun social events. Rate sponsored this event. And I was sure,

00:52in fact, I made Logan go over there because I was going to take a picture with the sign that said

00:57putt putt and it said mini golf. Mini golf. I got over there and I was like, I literally brought

01:06you over there so I can take a picture of it with you in front of it and be like, haha. And then

01:10you're like, Sarah Wheeler, you know, they say one man's invincible and the other man thought he

01:15could fly when they both jump off an airport or an airplane. They both die. They think they're

01:23invincible when he could go head to head with Logan. Just to remember that that was done on your home

01:29field in your event. It was all this hype, all this putt putt, everything out there. And the thing was

01:36called mini golf. Although many people at that event came up to me and they're like putt putt and

01:41they like put up their fist to do a fist bump. It is. But, but this day on this day, we will remember

01:47it called mini golf on your home court in your event and your thing in front of you. You said,

01:54you got to come with me. I got to take a picture of you. And I'm like, okay, all right. All right.

01:57It was mini golf. It was, it was a humbling moment for me. It was a great event though. That was just

02:03part of it. You did a great job as our headliner, our, our, our speaker there on economics. That was

02:09amazing. We had a lot of great speakers and the people who came, we just, the connections,

02:15the, um, generosity, I think of the speakers to get up there 15 minutes, not a lot of time.

02:21People flew in from all over, um, incredible event. Yeah. I think, uh, uh, when I, when I went

02:27on stage and said, has anybody heard that it was the greatest, uh, sellers, uh, to buyers gap in

02:33history. And that showed my chart. And it was basically, I said, 2005 and 2007 says, hold my beer,

02:38you know, so, uh, got it. We got a few, uh, that headline, that specific headline from Red

02:45Fed, right? Oh, the, the, the Northerners will never forget the red wedding. So I'm never going

02:52to forget that one. I don't think that quite rises to that level, but okay. So let's talk

02:58about some other things today. We've got, we're going to get to the inflation. We're going to get

03:02to purchase apps. First. I want to talk a little bit about the Fed. What would you say? There's

03:07lots, lots of talk right now. What's the term, Sarah? I don't know which term, what are we talking

03:14about? Tariff deranged, uh, tariff derangement syndrome. Oh yeah. That was the talk of this

03:23week. Of course it's inflation week. And, um, you know, it's funny because the set and, and,

03:29and other people are saying, look, look at the inflation data. What are, what are they doing?

03:34What's, what's the Fed doing? And I, I, I was reminding everyone because we're, we're doing this

03:39Thursday morning. So the PPI inflation came out today, uh, uh, tamer than what people thought the

03:44CPI inflation came out tamer. It looks like a global pandemic. It looks like a very inflationary global

03:50pandemic and the disinflation, all 1970s things didn't happen. All the, all these things about

03:55breakaway inflation, you know, the, the starting point of 2024 would be this, the second or third

04:01way. None of it's here, right? Tariffs are taxes. Shortages can be a problem for, uh, inflation.

04:08Of course, we saw that during COVID, but it gets into a point where I think it gets very interesting

04:15for the Fed, for Jerome Powell, cause this is it. This is, he's on his last year and the Fed,

04:23Fed, Fed, Fed presidents that people like to think of legacy and how the Trump administration

04:29was going to attack them. Uh, I think, uh, JD Vance retweeted one of the, uh, inflation, uh,

04:37headlines and said, this is malpractice by the federal reserve, you know? So as we have talked

04:43about from the start, what, what does the white house want? The white house wants a lower dollar.

04:49They got that the dollar is at a multi-year low right now. Energy prices had fallen. It's perked

04:55up a little bit recently because of headlines with, uh, with Iran, but the 10 year yield,

05:00I think for them, if they could get it between three 80 to four and a quarter and just have it

05:06stay there, they would be, they would be fine with that. And if you get one, 1% rate cuts into,

05:13into there, remember 65 to 75% of what, where the 10 year yield of mortgage rate can go is Fed

05:19policy. By the way, Sarah, really remember when Moody's downgraded our debt? I do. Okay. And

05:25we were like, the media is like, Oh my God, the bond vigilantes, the bond vigilantes are going to do

05:31that. The market is scared of our federal debt. This morning, the 10 year yields at 435. And for

05:36those who don't know what I'm talking about, 435 to 470, unless the labor market is breaking where

05:42Fed policy is. That's why I always talk about where Fed policy is. That is an acceptable range

05:48because the Fed, it wasn't about inflation. If it was about inflation, they would have stuck to

05:55their original call and say, we would like the Fed funds rate to mirror three, six, 12 months,

06:00PC inflation core headline, whatever you want to pick. Headline came in at two, one, 2.1%. We're three,

06:06three and a half percent that funds rate. They would have just stuck to that game plan. It would have been

06:10much better, but they're here. And I said to a lot of people this morning, Hey guys, if there was no

06:17trade war, they'd still be doing the same thing. They'd be still being, you know, the labor market

06:22isn't breaking. Consumption is fine. You know, they were talking about, we're not far from neutral

06:28policy before the trade war even got on. So I can understand how the white house is going to frame

06:35this, but all Nelly, it's going to get interesting. The last second half of 2025, because let's do two

06:42hypothetical theories here. Let's just say inflation never really took off. And everybody's going to

06:49say, look, Powell was wrong. This is all ideologically driven. He doesn't like Trump. So there are a few

06:55Fed presidents who don't like Trump and they, they did this, you know, this is malpractice, you know,

07:00they could go on a full court blitz then, or, you know, the tariff percentages, you know,

07:08tariffs are taxes, right? So a tax on the company or the consumer, that's, that's what it is. And

07:14we can see softness, uh, uh, in the data and the inflation data start to perk up a little bit

07:20where that can be a little bit more problematic, maybe for the economy, uh, out there. And the Fed

07:26just stays, you know, uh, uh, we're going to wait either case. It's an inflection point right now

07:34for them because a lot of people were told the tax cuts, uh, uh, deportation, inflation is going to

07:42take off here. All these things that we're hearing June and the growth rate of inflation felt like it

07:47would have, you know, uh, uh, anyway, um, still again, fed policy, fed policy, fed policy, pound

07:55the fist. Don't it's not debt. It's not anything like that. It is fed policy that is keeping this

08:00and it just gets more interesting in the second half out there. I think just for them, because

08:05like, uh, the Cleveland fed president said, I don't know what's going on, but we'll play catch up.

08:12Well, it's a labor data starts to get weaker. So it's going to be a fiery fun second half of 2025.

08:21Do you think, you know, in the past you've said, you know, they, they were old and slow

08:25knowing that it's, it's based on labor triggers and we haven't seen the labor triggers yet.

08:30Do you feel like the fed right now is already behind? Let me give my perspective. I would not

08:36have raised rates above 4% to start up with. I would have done basically what the federal reserve

08:42would have done, uh, before the spiking of the eggnog, I would have said neutral policy

08:48would have been basically worth three to six to 12 months. But we have to remember the

08:52fed panicked for the end of 2022 and they didn't think the growth rate of inflation was

08:58going to fall. And they just said, well, we are going to technically they were forecasting

09:02a recession by 23. Well, if the recession comes, we'll cut rates because the labor markets

09:06are, well, guess what? The labor market outperformed in 2023, but the growth rate of

09:11inflation fell. And I think they got stuck. Like my personal belief, the fed got stuck

09:18because the growth rate of inflation fell, but the labor market got approved. So they

09:22just basically hid behind the labor market for, for this period of time that we bought

09:27the labor over inflation for the end of 2022. But if you look at it, that that's the dual

09:32mandate, right? So if they could probably go back, I actually, I, I don't know this for

09:37sure, but maybe if they went back in time and knew what was going to happen with

09:40inflation data, that would have stuck to the original, but they went there and they

09:44stuck to it. Um, so we're here, this is where we have to do, have to deal with, but

09:51as always, the fed still says they are modestly restrictive because the fed funds rate is

09:57here and the growth rate of inflation is down here. But the labor market is starting to

10:02show a little bit more stress. Like the hirings aren't really, you know, that good

10:07anymore. I mean, for the first time in many years, the year to date job creation is, is

10:13underperforming, which that wasn't the case the past few years. And, uh, it just, I

10:19think this, it's, it's, it's a tough mind for them because if inflation does not pick

10:25up for the next six to seven months and boy, they're just going to hound and go, look, look,

10:31you panicked, you weren't wired at you. And, uh, and even, even if it does pick up and the,

10:38the labor data gets softer and worse, people go, you're too late. So they kind of put themselves

10:44in this corner, right? So you got to go with it, except not all fed presidents are in that

10:50camp, right? Waller who used to be a Hawk kind of isn't Bowman who used to be a Hawk. Isn't, uh,

10:57the shadow fed president is still in, in, in play in this regard. So it becomes an injury. We,

11:02we did that podcast, the civil war between fed presidents. So you're starting to see people take

11:08their corners, right? And then we're going to take it from there, but man, it is going to be

11:13interesting out there because you could, you could understand the, if ships weren't being sent over

11:19and goods weren't being there, uh, you would have a shortages of stuff to sell. So that is in a

11:25sense, inflationary, uh, how fast we can get everything back and going again. You know,

11:30that could be a delay impact. So nothing is smooth this year, right? There's tariff on tariff off

11:36Godzilla tariff, no Godzilla tariffs. This policy that was basically looks like the same thing before

11:41it's, it's chaos, right? But in this environment, the fed has to like focus on what they, uh, uh,

11:49what they believe in. Again, to me, it was always from day one since the spiking of the eggnog in

11:542022, by the way, I cannot wait to find that person. Oh, we're going to TP his house, his, him or her

12:00house. We're going to throw eggs at it. We're going to be hooligans, right? And, uh, um, and this is

12:07it. This is just where we are. And I always tell people, guys, if there was no trade war, we'd still be

12:11having this discussion. We also had, so here you are looking around to see, okay, who's going to be the

12:16shadow fed president? Because that's a strategy that, uh, Besant talked about in the, um, in the

12:22fall before the election, you've made a good case that this is what president Trump is probably going

12:27to do. And then we had, you know, some rumors this week that it was going to be Besant himself

12:32who was going to become the shadow fed president. Of course he is already treasury secretary. And what

12:37was his response? He came out and basically squashed it, right?

12:40Well, a lot of people would be happy if Besant took it. Um, but he said that he would be,

12:50he wants to be treasury until 2029. Okay. I think in 2029 he's done. Um, but in this context,

12:58uh, you could see in the background of what people, people want the fed to cut rates. So, uh, we always

13:05said three things, lower dollar, they got lower energy prices. They got lower tenure yield. They didn't

13:09get, uh, uh, so this was always about the tenure yield. And again, if you, if you look at the

13:14history of fed policy, the tenure yield mortgage rate, it all looks, it's consistent, right? That's

13:19not the case. I think it's not framed that way. And that's probably, you know, that's my fault that

13:25I did not frame that earlier. Uh, but I think now people are starting to understand, uh, uh, that. So

13:32we'll see. Uh, I think maybe you'll get some more rumors, but Besant, but really there's only three

13:38people. There's Kevin Warsh, which a lot of people on wall street don't like, but he's always in the

13:42background with Trump. So that's number one. And he's kind of, he always bashes the fed also. Um,

13:49uh, Waller would be a very, uh, good choice because they, they just see him as, you know, uh, a federal

13:55reserve person. And, uh, he's already kind of got into the labor over inflation tariffs or a one-time

14:01hit less. We can look through that. So that is somebody that the white house maybe can,

14:07can, can back up. But then again, if they choose him, you know, is the shadow fed president a little

14:14bit less relevant? Cause he's, he's at the fed. Um, uh, and then, uh, um, Michelle Bowman who,

14:20who just got, uh, uh, vice chair, uh, she's also somebody that was a hawk, but has gone to

14:26labor over inflation. We got, we got some people on the team Logan side now. Okay. So, uh, that were

14:33very hawkish on inflation. It's funny how people just like all of a sudden, you know, they go,

14:37Oh, we're, we're now we're later on inflation now. But so those three, um, uh, would, would be the

14:46headlines. But again, every month that goes by every week that goes by, uh, it just gets more

14:52interesting. And I think, you know, uh, when the CPI report came out, Trump went on and said,

14:58we need a 1% rate cut right now. The interest, uh, uh, of debt needs to be revised. By the way,

15:04that was again, still to this day, everyone, that was a gimmick. That was a marketing gimmick

15:08that the conservatives did with their social media people that, that we needed to create a

15:13recession to refinance our debt. And you know that, Oh my God, all this debt is about to come

15:18due. And the bond market is just going to look at the 10 year yield or 35. Come on, come on. You know?

15:25So I thought it was a good cover because again, a trade war, full blown trade war can, can be

15:31problematic for business investment. And we saw that in the last one. So they use that as a clever

15:35cover for like, Hey, we need rate cuts because we have so much debt we have to redo. But in this case,

15:41uh, you don't get a 1% rate cut unless you have like real problems of the economy. Uh, uh, so that,

15:49that's not going to be a legitimate theory, but we'll see. I mean, um, I don't see the

15:55tariff percentages really coming in through the goods yet in a meaningful way. Uh, nobody looks

16:01at that. You shouldn't cause you have a life. So we'll see how the second half goes, but, uh,

16:05you could see what happened in the first half. People are like, what, where is it? Where's the

16:09inflation? Where's the breakaway? You know? So that's how, why the, uh, tariff deranged syndrome

16:16is coming out, uh, by some of the people. Okay. So this week also some very interesting

16:22data, purchase application data. Okay. We have to, no one cares about purchase application

16:27data, but it's actually a huge, hugely important data line. I know that now because I interview

16:32before that, really, I would have said the same thing. So tell us what we got this week.

16:39Sarah, I remember a few weeks ago I was telling you, I said, look at these, man, we're going to get

16:42some really, really easy comps every week coming out. Cause you know, last year you could see this

16:48was declining noticeably. Um, if you did not know how purchase application data works and you saw

16:55this headline 20% year over year growth, 10% week to week people like what? And I get it. Like if you

17:05don't track things, you see that headline or thinking, Oh my God, that's, that's very noticeable,

17:09you know, but again, purchase application is a trend survey. So we want to go over all the data,

17:15uh, uh, this year we have 11 positive week, week to week grants. We have eight negative. We have

17:20three flats. Preferably I would have loved to see that three weeks of decline when mortgage rates

17:27spiked up, uh, uh, Godzilla tariffs, the ripping of the face reversal and yields, uh, that gave us three

17:34negative weeks. Now, even though the year over year growth was still there the entire time,

17:38if that was a positive and we had 14 positive weeks, five negative three flats, the year would

17:45have looked better, but we lost kind of that month, uh, momentum, but we're back up here again.

17:51Uh, 10% of weeks to week growth, 20% of year over year. Again, very low comps. Think of it very easily.

17:56Your listings data is up year over year. Uh, rates fell this year instead of rising throughout the year.

18:02So the, if you look at the comp spaces and what happened with rates and new listings,

18:07you could see how purchase application data could be positive. And I think that should be the,

18:13you know, peak growth rate of this year because the comps are really easy. So 20%. Yes. This

18:19material, I always say if this data line is really doing good, it's 15 to 25% year over year, every

18:23single week, no equivocation, boom, boom, boom, especially working from a low bar. So, uh, yeah,

18:2919 straight weeks of positive year over year growth, six straight weeks, uh, in a row, uh,

18:35double digit year over year growth. And just remember July to November for the months of June

18:41to October. I always have to say that because people don't know the existing home sales is for

18:46the month behind. So it's a lagging data line. If home sales just stay flat, you're going to see

18:52year over year growth for five straight months context, right? So, uh, we're keeping an eye on this

18:56because purchase apps look out 30 to 90 days. It might even take four months before it even

19:00hits the sales lines. We've had some very awkward existing home sales prints where we see growth.

19:05It tends to sometimes go into one month or spread out. Uh, so we'll keep an eye on this going out

19:09of the future, but yeah, it is the first positive year. Nobody else is talking about it. I'm looking

19:16for anybody else that wants to, nobody wants to touch this, right? Nobody wants to touch this.

19:20Well, they were like, and I, I, I totally get it. Even like a really good example. One of my wall

19:25street trader friends, he's like, he looks at the new home sales reports. He sees all these surveys.

19:31The survey looks like new home sales is crashing, right? You're just like, it's really bad. And then

19:36I say, I retweeted him. I said, look, Hey, we just did a multi-year high in new home sales. And

19:42the purchase application data for the new home market is post COVID hot. So what's going on?

19:47Surveys are down. Sales are up. Surveys are tilted for smaller builders. Bigger builders are just

19:54paying down and closing these transactions when they can. They sell homes as a commodity

19:59that purchase application data is very seasonal. It's at the peak of the seasonal part. It's going

20:03to decline like it does every year. Um, but they live in a sub 6% world and they manage their stuff.

20:10And we're just basically in a sales range for years. Uh, so it's confusing. I think I, I still

20:16think today, like people just don't know what to make of the purchase application data.

20:20All right. But if you look at the history of purchase apps and sales trends, they tend to move

20:25together. No equivocation, 100%, but it can get confusing with the percentage increases on a year

20:31over year. Like we're not getting 20% growth in sales. You've got to take it as a trend. And this is

20:36why when we do the tracker, we religiously, like I literally handwrite purchase application data on a

20:42book. I know. I've seen it. I am going to, if somewhere in here, I literally, I am not kidding

20:52you. I have every year just so I can, you know, keep it in my mind about what the data was doing.

21:03Right. Cause you have to track it differently. It is a trend survey. And, uh, uh, if you're confused,

21:10I totally get it. Cause if you look at that data line, if you did not know anything else,

21:15you would think, wow, the housing market is doing good, right? There's less cash cash buyers this

21:20year, but, uh, this is why everyone should read the tracker. Cause we correlate the purchase apps

21:25with our pending sales. And what happened last year is that purchase apps were getting better.

21:30Nobody cared about it because they saw the low volumes. They saw no year over year growth. So they

21:35ignored it, but you've tagged that 30 to 90 days out with our pending sales data. Oh my God,

21:41a couple of hundred thousand more home sales. So we just keep an eye on it. But, uh, if you're

21:45confused, I totally get it. Cause even my smart friends are like, what the hell is this?

21:51That's why we have you, Logan. You help us to be less confused and so appreciate your time. So

21:57appreciate the wrap up here. We will talk to you again soon.

21:59Pleasure. Oh, uh, last thing, Sarah. Uh, there is a, there is a video. If anybody wanted to see

22:07a video of Sarah Wheeler being brought up to the mini golf side, uh, I did take it and I told her,

22:15I said, Sarah, will you, you're going to try to roll like rip me on this. And, uh, here we are. So

22:19I just wanted to look at that. What does it say? Mini golf. Yeah, that was, that was a pretty great

22:26moment. Also, I think it's funny that in this podcast, I've been Sarah Wheeler, not Sarah,

22:31I've been Sarah Wheeler, like four or five times. Like, Oh yeah. Whenever you're being,

22:35whenever you're being scolded, it's Sarah Wheeler. And by the way, there is a petition.

22:40There is an online petition to get me on four times a week. Somebody created a petition, find it,

22:46sign it, send it to housing wire, get low. We're going to eventually make this five days a week.

22:50And eventually it'll be seven days a week. It'll be 24, seven, twice a day.

22:54The chart daddy. As I have said to some people, I think you just want a Truman show.

22:59Only it's the Logan show. We just follow you around. I can walk around with a 10 year yield

23:03chart right behind me, you know, 24, seven, I would do it. Yes. It's like, here's Logan on a

23:09Friday night, looking at charts. Here's Logan in the middle of the night, waking up to look at the

23:1410 year yield. So yeah, it'd be, it'd be fascinating. We'll see. We shall see Logan. Thank you so much

23:19for being on. Appreciate you. Pleasure.

23:33.

23:35.

23:37.

23:39.

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