Rates Reacting to War and The Fed, But Maybe Not For Long

After hitting the highest levels in decades last week, mortgage rates dropped sharply at the beginning of this week. At first glance, this was a classic flight to safety following the outbreak of the Israel-Hamas Conflict, but at the same time, markets were possibly just as interested in a change in tone from the Fed. The Fed's last policy announcement was on September 20th and we won't get the next one until November 1st.  Between now and then, the market refines its understanding of the Fed's stance based on speeches given by regional Fed presidents and/or executive board members. First off, essentially every Fed speaker qualifies their comments these days by saying something to the effect of: "if the economy and/or inflation run hotter than expected, we may have to hike more."  To be sure, that goes without saying at this point, so we will not say it again, but you can safely assume that it was present in all of the Fed speeches recapped below. Dallas Fed President Lorie Logan and Fed vice chair Philip Jefferson kicked things off over the 3 day weekend, sharing mixed comments on Monday.  Logan said that the recent run-up in long-term rates meant less of a need for the Fed to hike again.  Jefferson was even more encouraging, saying: We have to balance the risk of not having tightened enough, against the risk of policy being too restrictive. In assessing future policy changes, I will keep in mind that financial conditions are tighter due to higher bond yields.