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Rate Cut Parties, CRE Slow-Burns And Recession Canaries
The Fed's "loath to impose" reality on liquidity takers.
So said BofA's Jared Woodard, channeling T. S. Eliot while filling in for Michael Hartnett in this week's installment of the bank's popular "Flow Show" series.
2024, the bank noted, is already the "third best year for rate cuts." By that they meant we've seen a few. A few rate cuts. And we're likely to see a few more before the year's done.
As the figure shows, 2024's tracking for dozens of global cuts coming out of the three most one
With regard to the CRE maturity wall, banks and borrowers will do the same thing they have always done when faced with this situation: “Extend and Pretend”. Banks can give the borrower a one year extension- with the hope that rates come down and leasing improves.
Problem solved 🙂
Jackson Hole remarks by Powell as expected – inflation on path to target, employment now main focus, time for policy shift, no elaboration on how much or how fast.
Suppose -100 bp easing over next few months.
Likely effects include credit card rates ~500bp lower, homebuyers’ “buying power” 10% higher on mortgage rates 5.5%, lower deposit cost for banks, lower debt cost for large corporates – lots of stimulatory effects.
But not higher occupancy of distressed central business district office CRE. So, not relief on CRE loans and lenders. At some point, CRE has to come back into the headlines, most likely route is bank earnings reports.
He was emphatically dovish. Look at BBDXY reaction.
Hmm . . . on second thought . . . looking at 10Y vs FF, if FF comes down say 200 bp and FF/10Y curve gets to a little positive, then seems the bulk of decline in 10Y yield and hence mortgage rates has perhaps already been seen?