One of the biggest uncertainties of the week was resolved on Tuesday with Fed Chair Powell answering questions about the policy outlook without any real surprises. Unfortunately, the absence of any rate-friendly surprises meant that rates found no reason to abandon their defensive stance with additional hurdles remaining. Several of those hurdles need to be cleared today, including multiple Fed speakers to help round out Powell's thoughts as well as 10yr Treasury auction in the afternoon.
Right out of the gate, NY Fed Pres Williams is taking an even more hawkish tone than Powell, saying that the Fed will need to maintain a restrictive stance for a few years. Combine that with his assertion that policy is just "barely restrictive" right now and it's essentially a forecast for rates to remain flat to slightly higher for a long time.
Of course these are just words today. Things can change in the economy that would change the outlook and ultimately affect the Fed's policy stance. The market is a bit too focused on those "what ifs," according the Fed and not doing enough to appreciate that inflation could be more persistent than expected, or that the economy could be more resilient than expected. Of course economic resilience in and of itself is a good thing, but the downside for the mortgage market is that economic resilience only bolsters the case against low rates.
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