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The Inflation Game

Alexis: Hey, everybody! Welcome back to the Mortgage Rundown. I'm Alexis Quinney here with Jason Obradovich, CIO of New American Funding. How have you been, Jason? It's been a while since we've talked.

Jason: It has been. Doing well. Thank you very much. How are you?

Alexis: I’ve been good. So, since we last talked in 2021, rates have been going up and up and up, and you know, they've kind of started to level off recently. So, I wanted to kind of get your thoughts on where the market is heading in the rest of 2021.

Jason: It's a good question. Obviously, 2020 was one of those years where rates went down. They were at levels we had never seen before. Sooner or later, there was going to be the other side of it where rates started moving up, and they moved up really quickly. You know, at the beginning of 2021 rates shot up, people were getting 3.5%, or sorry, 2.5% on their mortgage, sometimes even 2.25%. And now we're talking about 3.25%, maybe 3% or slightly below that if you're lucky. And so, we have seen rates go up. They have started to come down a little bit. And to be quite honest, I think it's very temporary. You know, we have a lot, kind of in terms of what's going to happen down the road with, you know, the Federal Reserve and the Biden administration. Those are the things that are likely to come out of that are rates are going to move a little bit higher. You know, where do they go at the end of the year? You know, that's anyone's guess. But I would say if I was a betting man, you know, I don't really see rates much lower than they are now unless we're talking, you know, 6+ months down the road.

Alexis: All right, so I know the Fed meeting happened. Can you give us a summary of what was announced? Is there anything that we should be aware of?

Jason: Sure, you know, it was a really quiet meeting. The Fed's going to keep doing what they are doing. They're going to continue to support the economy. They're going to continue to keep the overnight rate near zero or close to zero as they can for the foreseeable future, probably through the end of 2022, maybe into 2023. You know, there is some short-term inflation going on. I think we all can feel it, especially if you're in real estate, you're just seeing prices, and even items, you know, imported items, wood, a lot of things, prices are going up. But, you know, from the Fed's perspective, that is very temporary, that the long-term inflation or the long-term outlook for inflation is going to be somewhat muted. And so, they still have to use the interest rate policy to keep the economy growing. So, don't really…we don't want people to look in the short term of what's happening this second. We really want to look 6 to 18 months out and what we expect inflation to be. And so, from that perspective, you know, what the Fed's going to be there. They're going to keep the overnight rate low, and that's going to go on for the foreseeable future.

Alexis: So, a little bit earlier, you mentioned the Biden administration, and I know there are talks happening, changing the tax codes, and maybe another potential stimulus. So, what can you tell us about that? What do we need to look out for?

Jason: Yeah, you know, it's taking longer than I think most people thought in terms of the stimulus plan, because where to direct the funds, how much funds? You know, where is it really going to help the economy versus just feels like a free-for-all all, this big money grab? And I think there's been a lot of back and forth, I think more than what people anticipated. So, nothing's happened yet. Whatever they plan on doing, it's going to be in the trillions. I mean, that's a lot of money to pump into the economy. It's really hard to even give scale when you talk in the trillions. But I would expect, you know, the market's reaction when it does get passed is you'll see stocks continue to move up if it's a big, bold plan. If it's a weak plan or the dollar amounts are too low, the market's expecting something different, you might actually see stocks go the other way. But let's just presume that it’s a big, bold plan. A lot of money is put to work. It actually helps the economy grow. It's going to impact short-term inflation, not necessarily long-term, but short-term inflation. And that might end up pushing mortgage rates up a little bit. And so, I think that's the expectation. You know, what happens a year or six months down the road after the plan rolls out, and what economy really is there at the point where we just can't keep shoving all this money in? You know, that's a whole different equation. But if you're really looking in the short term, it's likely going to help the economy, it's likely going to help stocks and it might hurt mortgage rates a little bit.

Alexis: All right. Good to know. Well, that's really all I have for you today. If there's anything else you want to talk about…but that's all I have.

Jason: You know, it should be a pretty short update this week. You know, we didn't have a lot going on. I really think when we have a stimulus plan or even a tax code plan. I know I didn't talk about the tax code plan, but really not much has happened. There's been a lot of infighting between Democrats and Republicans, especially the Democrats that are in states like California, New York, and New Jersey that are really focused on this Salt deduction. And so, a lot really has to kind of wash out. So, from a tax perspective, there really isn't much of an update. But like the stimulus plan, when something actually happens, I think we'll see more of a market reaction. We'll see more market movement, and we'll have a better idea of the direction of the market. Right now, you know, the market's very directionless. It doesn't know what's going to happen. So, it's all based on instinct. I think there's going to be a stimulus plan. I think there are going to be tax code changes. I think eventually the Fed's going to lower rates. We don't necessarily know. And so, the market's trading on that. I know that's a long answer to your question if that was it. But really, that's something that I hope everyone takes away from this, is that we're in the waiting room, waiting for something to happen.

Alexis: All right. Well, yeah, I mean, as you said, the waiting room. It feels like we've been in the waiting room, but we'll continue to wait.

Jason: Absolutely.

Alexis: All right. Well, that's all I have for you today. Thank you so much for taking the time. Yeah. Have a great day.

Jason: Yeah. Thank you, everyone. Have a great day.

Alexis: Bye.