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Mortgage Rates Slightly Higher, But No Major Volatility

Heading into the day, the market held out the possibility of heightened volatility surrounding a speech from Fed Chair Powell  at the annual Jackson Hole symposium.  Hosted by the Kansas City Federal Reserve Bank, Jackson Hole draws central bankers and economists from around the world and has occasionally served as a venue that offers a sneak peak at potential shifts in policy or the economy itself.   More frequently, Jackson Hole is notable only for its great expectations and underwhelming reality.  This year’s example falls into this category.   Powell was slated for the opening remarks.  Market watchers were waiting for him to say something about the “neutral rate of return” (also R* or “R-Star”)–a hypothetical policy rate resulting in stable economic growth and stable, on-target inflation.  The recent obsession over R-Star is due to the fear that the low baseline for interest rates has moved up permanently for a variety of reasons that can’t possibly be determined or calculated any time soon. As such, it wasn’t too surprising to hear Powell say “we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint.”  Translation: he has no idea if R-Star is changing or will change.   The other even crazier anticipation surrounded the Fed’s 2% inflation target with some market watchers wondering if the Fed was considering increasing the target due to the same sort of underlying structural issues that would underpin a higher R-star.  Powell was even more clear on that topic: “Two percent is and will remain our inflation target.”
Source: mortgagenewsdaily.comNew feed

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