1Source: Average of Bankrate 30-year fixed rate and the Freddie Mac 30-year fixed rate. Data is as of October 2024.
2A lag of only three months seems short, but it fits with our view that the lag in monetary policy’s impact on the economy has shortened, a point that Fed Chair Jerome Powell has previously acknowledged. “Transcript of Chair Powell’s Press Conference,” Federal Reserve Board, November 2, 2022. https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20221102.pdf
3As we’ve written, our baseline view is two more 25bps rate cuts this year, one each in November and December, and four in 2025, one per quarter, which would bring policy rates to 3.5% by the end of next year. There are upside and downside risks to this base-case view, and it may also be impacted by the upcoming U.S. presidential election.
4Longer-term Treasury yields are based on expectations of Fed interest rate policy, and mortgage rates are priced at a spread above Treasury yields. Thus, a Fed cutting cycle flows through to mortgage rates. We note that the mortgage spread is currently wide, due to elevated interest rate volatility, which we expect to decline as the Fed’s moves further towards a neutral monetary policy stance.
5Joe Seydl and Jonathan Linden, “Investing in a changed world of shortages and oversupply,” J.P. Morgan Private Bank, July 18, 2023. https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/investing-in-a-changed-world-of-shortages-and-oversupply
6We have previously taken a deep dive into the U.S. housing affordability crisis. Joe Seydl, “When will the crisis in U.S. housing affordability end—and how? J.P. Morgan Private Bank, November 14, 2023. https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/ideas-and-insights/when-will-the-crisis-in-US-housing-affordability-end-and-how
7“National Community and Transportation Preferences Survey,” National Association of Realtors, April 2023. https://www.nar.realtor/sites/default/files/documents/2023-community-and-transportation-preferences-survey-slides-06-20-2023.pdf
8Joe Seydl and Jonathan Linden, “Investing in a changed world of shortages and oversupply,” J.P. Morgan Private Bank, July 18, 2023. https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/investing-in-a-changed-world-of-shortages-and-oversupply
9LilLily Katz, “6 of every 7 people with mortgages have an interest rate below 6%, but the lock-in effect is starting to ease,” Redfin News, August 27, 2024. https://www.redfin.com/news/mortgage-rate-lock-in-housing-2024/
10Although this does appear to have happened in certain isolated metros with high supply elasticity, such as Austin, Texas, Phoenix, Arizona, and in the condo market in South Florida.
11Michele Andreolli, Natalie Richard and Paolo Surico, “Non-Essential Business Cycles,” National Bureau of Economic Research, June 2024. https://conference.nber.org/conf_papers/f202255.pdf
12Furthermore, smaller companies also tend to have a greater share of liabilities that are floating rate rather than fixed rate. Michael Cembalest, “Eye on the Market: The Lion in Winter,” J.P. Morgan Asset & Wealth Management, July 23, 2024. https://am.jpmorgan.com/us/en/asset-management/institutional/insights/market-insights/eye-on-the-market/the-lion-in-winter/
13We also ran the same exercise on the small (S&P 600) and mid-cap (S&P 400) equity indexes separately. While we did find a statistically significant and similar result for mid cap, we did not find statistical significance when examining small cap on its own. Results available on request.
14Jorge Miranda-Pinto, Andrea Pescatori, Ervin Prifti, et al., “The commodity transmission channel of monetary policy and inflation dynamics,” Vox EU, Centre for Economic Policy Research, May 28, 2024. https://cepr.org/voxeu/columns/commodity-transmission-channel-monetary-policy-and-inflation-dynamics
15For crude oil, the result is a peak impact of +5.4% five months after the drop in interest rates, while the result for copper is a peak impact of +3.8% three months after the drop in interest rates. Results available on request.
16Joe Seydl, “How do geopolitical shocks impact markets?” J.P. Morgan Private Bank, May 24, 2024. https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/how-do-geopolitical-shocks-impact-markets
