Changing Communications
June 26, 2026 -- It's hard to believe that half of 2026 has already gone by, but here we are. Certainly, things have changed this year in unexpected ways, what with the outbreak of military activity in the middle east, inflation moving in the wrong direction and interest rates generally firming over the last six months. Also, we have a new Fed Chair in town, one who came in with an appreciably more hawkish stance than was expected, Investor hopes for cuts in interest rates at the beginning of the year have now swung fully around, with rate hikes at some point now a possibility.
The cessation of hostilities (at least for now) and the corresponding easing in oil prices may after a period of time help inflation to retreat again, possibly forestalling an increase in policy rates by the central bank. Much depends on how price pressures behave in the coming months. It does seem likely that as time moves toward the end of the year that we'll see less indication of what the Fed may do with policy in the future, as Chair Warsh appears to prefer a more closed-lipped approach to messaging.
As the new central bank leader more firmly takes the reins, we bid farewell to central bank legend Alan Greenspan, who passed this week at 100 years of age. Mr. Greenspan was famous for his ability to speak with great ambiguity when it came to monetary policy, famously telling a Senate Committee in 1985 "Since I’ve become a central banker, I’ve learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said." Some years later, he offered "If I've made myself clear, I've misspoken" as well as other similar statements. There was no mistaking his impact on the economy or the central bank during his five consecutive terms at the helm, but like every Fed Chair ever, he had judgements and fostered policy changes that were more or less beneficial or effective, always with outcomes that were only fully revealed in hindsight.
Along with other expected reforms he is said to be looking to pursue, perhaps Mr. Warsh is looking to return the Fed to messaging climate more akin to Mr. Greenspan's tenure, a time when monetary policy outlooks were generally less transparent. At his post-meeting press conference, Mr. Warsh expressed this fairly clearly, saying "I think the financial markets work less efficiently when they ask a question. 'How will the Federal Reserve react to that incoming information?' Financial market prices are probably the most important source of information to guide central bankers. But when all the financial markets are doing is reflecting back what we've said, then we're taking the most important source of information and we're being blind to it."
Since the time Mr. Greenspan's Fed began releasing post-meeting statements in 1994, they have changed considerably, moving from a simple notice released only when a policy change occurred to an every-meeting thing, and ultimately becoming a market-moving policy tool in its own right. Later, this was accompanied by quarterly post-meeting press conferences, a practice expanded to every meeting under former Chair Powell. In 2012 came the Summary of Economic Projections (aka "dot plots") from Fed members, and along with these formal communications there are any number of speeches and such by Fed members and more. It seems that from Mr. Warsh's perspective, the Fed is doing too much talking and not enough listening. It may be that official communications will again become more about what the Fed did or didn't do and less about what it may do in the future.
If we had to guess, post-meeting statements will endure, but post-meeting press conferences may become less frequent, perhaps eventually returning to a quarterly affair, and there will be changes to (or perhaps a discontinuation of) the SEP. Mr. Warsh declined to participate in the most recent release of the dot plots, and its likely that some Committee members may prefer not to do so in the future. We'll certainly know more -- or perhaps less -- over the second half of the year.
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Outside of extraordinary measures such as MBS buying, the Fed has little direct impact on fixed mortgage rates. With Mr. Warsh said to be looking to find new ways to reduce the Fed's existing balance sheet, that avenue is likely closed unless some significant new crisis should emerge. For folks hoping for lower mortgage rates, the best thing the Fed can do is get inflation heading back in the right direction. It's worth considering that 30-year fixed-rate mortgage rates drifted to about three-and-a-half-year lows earlier this spring, when inflation was cooler and prospects for further declines at least reasonable. Neither is currently the case, and of course this has had implications for the housing market.
Sales of new homes have slumped this spring. The Census Bureau reported that the annualized rate of new home sales declined 7.3% in May, landing at a 580,000 pace, the second slowest rate of sale in about three and a half years and the weakest may since 2016. All of the decline came from sales in the western region of the country. Slack sales boosted inventories of homes for sale; at 10.3 months of supply at the present rate of sales, builders have already throttled back on construction activity, something we saw just a week ago in the 15.4% month-to-month decline in May housing starts. It may be that the seasonal upturn in home prices has deterred borrowers, as the median price of a new home sold was 2% higher in May than April, rising to $424,900 last month. although this is virtually unchanged from a year ago. After new home prices touched that 2025 peak last May, they retreated a bit, so perhaps potential buyers are hoping that will be the case again this year.
Applications for mortgage credit also reflect soft demand. The Mortgage Bankers Association reported just a 1% increase in requests for mortgages in the week ending June 19. A 0.6% decline in applications for funds to purchase homes tempered the top-line figure, which was lifted by a 3% increase in requests for loans to replace existing mortgages. Mortgage applications have been mostly ebbing and flowing along with mortgage rates since March, all the while running at a pretty low level overall over that time.
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Manufacturing activity seems to have found at least some durable footing in recent months, and we've chronicled that improvement in a number of MarketTrends. Another local report adds to that story of solidifying conditions, as the Federal Reserve Bank of Richmond chimed in with its update for June. The barometer for the fifth Fed District came in with a decline of 9 points, but this left the monthly value at a still-positive 4 for June. The sub-measure covering new orders saw a similar change, sporting an 8-point slide to land at 9. Employment conditions weakened a little, easing from +3 to -1 for the month, while the "prices paid" inflation measure ticked one point higher again to 7, its highest figure in four months and a match for several peak values reached since April 2023.
The final update for Gross Domestic Product for the first quarter of 2026 had the economy expanding at a 2.1% annualized rate, up from just a 0.5% fourth quarter of 2025. That period was distorted by the most recent partial government shutdown. Growth for the second quarter seems to be on track to improve on 2026's first stanza, as the most recent running estimates for growth from the Nowcast and GDPNow models from the Federal Reserve Banks of New York and Atlanta suggest an average 2.84% annualized pace for GDP for the second quarter.
That said, growth did seem to decelerate a bit in May, according to the Chicago Fed's National Activity Indicator. Coming in with a -0.10 value for May, this amalgam of 85 economic indicators suggests seeks to show if the economy is growing above or below its "potential", or ability to grow without throwing off imbalances such as inflation. While "potential" is a bit of a moving target, it is thought to be a GDP of perhaps as high as 2.4%. but may be slightly less or more than that mark. Wherever it may presently lie, the NAI says if failed to reach the mark for the month, but not by much.
Initial jobless claims settled back a little in the week ending June 20, falling by 12,000 to land at 215K. We have suspected that the recent upward flare in first-time claims for benefits was a seasonal blip, much like the ones seen in recent years around the start of June. With the downward drift, this is starting to appear to be the case. Not drifting downward is the number of folks receiving ongoing benefits, which has ticked up a bit lately, and rose another 21,000 to 1.821 million recipients in the most recent survey week, and now up to about a three-month high.
Orders for durable goods fell by 4.5% in May, taking a breather after a couple of strong months in a row. As is often the case, transportation-related orders had an outsized (and downward) impact, dragging the headline figure down. Leaving those out of the calculation left a 1.3% increase, part of a string of gains that began a year ago. So-called "core" durable goods orders (no military spending, no aircraft in the calculation, and a proxy for business-related investment) managed a 1.6% increase, so fair enough.
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Personal incomes rose a stout 0.7% in May, although it was noted that much of the increase came from a second large payment to struggling farmers. That effect lifted proprietor incomes (e.g. farms) by 4%. Outside of this, the gains were still pretty good; wages managed a 0.4% increase for the month, and this gain was accompanied by another 0.7% increase in rental incomes (which have been very strong since the turn of the year), as well as a 0.6% increase in direct government transfer payments. Receipts from investment were flat.
Overall personal spending kept pace with income gains last month, rising by 0.7%. This balance between income and outgo meant no additional funds available to be banked, and the nation's rate of savings remained at a thin 3% for a second month in a row, holding at about a four-year low.
Inflation continued on its upward march in May. The Personal Consumption Expenditure price index for the month rose by an as-expected 0.4%, the third time this figure has been seen in the last four month. The bump in costs lifted the annual rate for PCE prices to 4.1%, the highest level this overall measure of prices has been in three years. Relative to their recent changes, prices for goods settled back a bit, while costs for services increased. Core PCE was somewhat tamer; this calculation excludes highly-volatile food and energy prices, but still saw a 0.3% increase for the month, lifting the 12-month rate to 3.4%, and another step away from the Fed's 2% stated goal.
Current Adjustable Rate Mortgage (ARM) Indexes
| Index | For The Week Ending | Year Ago | |
|---|---|---|---|
| Jun 19 | May 22 | Jun 20 | |
| 6-Mo. TCM | 3.86% | 3.77% | 4.31% |
| 1-Yr. TCM | 3.92% | 3.82% | 4.09% |
| 3-Yr. TCM | 4.15% | 4.15% | 3.90% |
| 10-Yr. TCM | 4.46% | 4.60% | 4.40% |
| Federal Cost of Funds |
3.463% | 3.457% | 3.663% |
| 30-day SOFR (daily value) | 3.60872% | 3.62113% | 4.31155% |
| Moving Treasury Average (MTA/12-MAT) |
3.720% | 3.745% | 4.308% |
| Freddie Mac 30-yr FRM |
6.52% | 6.51% | 6.84% |
| Historical ARM Index Data | |||
Without a break in the inflation trend, it will be difficult for mortgage rates to fall very much. The significant decline in oil prices over this month, does improve the prospects that inflation will settle from here, but it's less clear when that settling will begin. Even outside the effects of oil prices, inflation was already firm and trending upward, and it will take a period of time yet for prices to level off, let alone reliably start to retreat toward the Fed's 2% core PCE goal.
If a decline in inflation can start to show soon and manage to continue over the next couple of months, this may keep the Fed from needing to raise rates come September. Futures-market odds don't presently favor that outcome, but a lot can happen in three months' time, as recent experience shows.
We don't expect to see much by way of a big change in mortgage rates next week, but there is a chance they can drift slightly lower, provided the drop in yields from Wednesday's bond market rally can most hold for another day or so. As such, we think that we'll see a 4-6 basis point decline in the average offered interest rate for a conforming 30-year fixed-rate mortgage as tracked by Freddie Mac when they report again on Thursday. After that, the second half of 2026 kicks in, and no one knows what surprises that may bring.
As spring begins to turn into summer, what will mortgage rates do? Have a look at our latest Two-Month Forecast for mortgage rates to see our expectations.
It's already closing in on mid-year, but HSH's 2026 Mortgage and Housing Market Outlook covers our expectations for mortgage rates, housing conditions, the Fed and lots more over the whole of 2026. You should check it out.
Also, for a really long-run outlook, you'll want to review "Federal Reserve Policy and Mortgage Rate Cycles".
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