Economy

NEW YORK (Reuters) – It may not quite be the famous question of Shakespeare’s Hamlet, but it is something very much on the minds of U.S. homeowners these days: To refi or not to refi?Judging from the latest numbers, there is a lot of pent-up demand for Americans looking to refinance their home mortgages.In fact, refi applications recently jumped 20% in a week, according to the Mortgage Bankers Association, and accounted for 56% of all mortgage applications.Average rates on 30-year mortgages approached 8% last November. They stood at 6.4% on Tuesday, according to Bankrate.Federal Reserve Chair Jerome Powell has signaled that more Fed cuts are on the way, now that inflation is back down to manageable levels, which should trickle through the financial system.For homeowners, that potentially means big savings.Yet refinancing can be an intense process – in terms of time, documentation and fees. You can expect that costs will be in the region of 3-6% of the loan principal, according to lender Freddie Mac.And keep in mind that if you secured your mortgage years ago, your existing rate is likely below where rates are right now.So how much of a rate differential makes a refi truly worth the hassle? “The general rule of thumb is a 1-2% rate reduction for refinancing to be worthwhile,” says Matt Vernon, head of consumer lending for Bank of America.The interest rate is just one element of the refi decision. Here are a few factors to help you make that call and close the deal.DO NOT TRY TO TIME IT PERFECTLYTrying to time mortgage rates is like trying to time the stock market: You are never going to get it exactly right.So when you are offered an attractive rate that makes financial sense for your situation, do not overthink it. If rates continue to fall, you can always consider refinancing for a second time later on.“For homeowners who are trying to time things perfectly, there is no point in waiting another year for rates to drop by (another quarter of a percentage point) when they are moving so much on individual days,” says Daryl Fairweather, chief economist for real estate brokerage Redfin (NASDAQ:RDFN). “Rates will continue to come down – but it’s going to be a bumpy ride.”FOCUS ON THE TERM, NOT JUST THE RATEA lower mortgage rate is one factor in the refi equation. But if you are stretching out what you owe, you could actually be adding to your total bill.“Refinancing a 30-year mortgage for a home bought five years ago with a new 30-year mortgage today overstates the monthly savings,” warns David Flores Wilson, a financial planner in New York City. “The new mortgage will have five additional years of payments.”Instead, think about taking advantage of lower rates to tighten up the term – say to 15 years, instead of 30. For your retirement years, owning a home free-and-clear 15 years ahead of schedule can be a game changer.Says Jorie Johnson, a financial planner in Brielle, New Jersey: “We are seeing a lot of interest in refinancing to a shorter term at a slightly lower interest rate, and saving a lot of total interest paid over the term of the loan.”CONSIDER THE PURPOSEThere are other reasons why a refinance might make sense for you.For instance, you may have built up significant equity in the property amid the robust real estate market over the past few years. National home prices are hitting all-time highs, according to the S&P CoreLogic Case-Shiller Index.That would allow you to do what is called a “cash-out refi,” tapping some of that value to pay for a project like a much-needed renovation.And if your credit score is up considerably since you originally took out the mortgage, that will lower the mortgage rates you will see from lenders.SHOP AROUNDTo truly maximize the moment of declining rates, do not just interact with your current loan servicer. “These days there are so many tools online, where you can see multiple quotes at the same time,” says Fairweather. (Among them: LendingTree, NerdWallet, Bankrate, WalletHub and GoBankingRates.)“My best advice is for people to look beyond their own bank, and wherever they happen to have their checking account,” Fairweather notes. “That is likely not where you are going to get the best rate.” More

(Reuters) – Minutes of the U.S. Federal Reserve’s half-a-percentage-point rate cut last month, to be released on Wednesday, may provide a final word on just how divided policymakers were over a decision that took many economists by surprise and sparked the first dissent from a member of the Board of Governors in 19 years.Fed chair Jerome Powell in his post-meeting press conference said there was “broad support” for the half-point cut, with even dissenting Governor Michelle Bowman agreeing it was time to ease monetary policy but preferring to start with a smaller quarter-point reduction as a hedge against inflation risks she is not convinced have been fully tamed.Yet Powell also acknowledged a “good diversity of excellent discussion” about the decision, while projections issued by Fed policymakers about what would happen over just the next three months were unusually dispersed. In anonymized rate cut projections issued at the September meeting policymakers saw rates falling anywhere from 0 to 0.75 basis points further by the end of the year. This is a spread matched in the Fed’s September 2022 projections, when officials were still in the midst of hiking rates and debating how much farther they would need to go to tame inflation, but before that not seen since September 2016.The three-month time horizon provided in the Fed’s September outlook to the end of the current year is the shortest in the central bank’s Quarterly Summary of Economic Projections.The minutes, to be released at 2 pm EDT (1800 GMT), provide a detailed account of the back and forth among policymakers and staff over the course of each two-day meeting. They contain sections on the economic and financial outlook as well as an account of officials’ views about appropriate monetary policy and the risks they feel the economy is facing. While it is a backward-looking document, typically issued three weeks after each Fed meeting, it can also better frame for the public and investors the spread of opinion around each policy vote. In doing so it also can provide clues about how the Fed might react to incoming economic data.The minutes “may shed some light on the bar for officials to move policy rates lower at a faster rate,” economists from Citi wrote on Monday.Investors currently expect the Fed to lower the benchmark rate another quarter of a point at the Nov. 6-7 meeting and then again in December.The document may also give a better sense of whether the half-point cut was a hard sell for its proponents or not. Though there was only one dissent, that does not speak to how the 7 non-voting participants in the meeting, the presidents of some of the regional reserve banks who rotate in and out of voting positions year by year, felt about the move, or about how the voters viewed their options. In an interview last week, Richmond Fed president Thomas Barkin, who does have a vote this year and supported the half-point, said he was open to a smaller reduction as well and did not see much macroeconomic difference between the two. He noted that starting with the larger reduction was consistent with the policy paths outlined by almost all 19 Fed officials. Nine officials, for example, expected four quarter point cuts for all of 2024 would be appropriate, while seven others projected three only.”It was a big tent,” Barkin said. “If you were going to end up somewhere in that range…it was reasonable to do 50. It also would have been reasonable to do 25. I was perfectly comfortable voting for 50.” From here, Powell and other officials have noted, the Fed can tailor the pace and extent of cuts depending on how the economy and inflation evolve.A Friday jobs report cemented views among investors that the Fed would scale back to a quarter point cut at its November 6-7 meeting after payroll employment surged more than expected, the unemployment rate fell, and wage growth at 4% remained above what policymakers see as consistent with their 2% inflation target. New inflation data to be released on Thursday will be the latest key data point in the debate, with policymakers generally open to continued rate cuts as long as there is evidence price pressures are continuing to ease. More

The economic impact would result from severe damage to infrastructure in the conflict region and the potential for compromised shipping lanes, Lloyd’s said in a statement.Wars in Ukraine and Gaza have already disturbed shipping routes in the Black Sea and Red Sea.”With more than 80% of the world’s imports and exports – around 11 billion tons of goods – at sea at any given time, the closure of major trade routes due to a geopolitical conflict is one of the greatest threats to the resources needed for a resilient economy,” Lloyd’s said.The possibility of such a geopolitical conflict was a systemic – or low likelihood but high impact – risk, Lloyd’s said.Lloyd’s said it has also researched other potential systemic risks in partnership with the Cambridge Centre for Risk Studies, including cyber attacks and extreme weather events. More

Chinese stocks tumbled on Wednesday, curbing a historic rally after an anticipated fiscal stimulus announcement failed to materialise.The benchmark CSI 300 index closed down 7.1 per cent — its biggest one-day fall since February 2020 — as investors grappled with a lack of clarity around Beijing’s stimulus programme to boost economic growth and markets.Expectations had been mounting that an initial round of monetary easing measures that targeted China’s depressed stock and property markets last month would be followed by fiscal spending to encourage businesses and consumers to spend.After a highly anticipated briefing on Tuesday by China’s state planners offered little further detail, attention is now turning to a finance ministry press conference on Saturday focused on “intensifying countercyclical” adjustments to fiscal policy.What happened on Tuesday?Zheng Shanjie, chair of China’s National Development and Reform Commission, the economic planning agency, promised on Tuesday to accelerate bond issuance to support the economy, front-loading about Rmb200bn ($28bn) from next year’s budget for spending and investment projects.He also hinted at measures to stabilise the property sector, boost capital markets and fuel the “confidence” to achieve China’s economic growth target this year of about 5 per cent.But the announcements left many investors nonplussed. Stock gains on the Hong Kong and Chinese bourses fizzled, with the Hang Seng index suffering its worst single-day fall since October 2008 on Tuesday, while the mainland CSI 300, which had soared more than 33 per cent over the past month, snapped a 10-day winning streak on Wednesday.Did investors misread signs that a bazooka was coming?The NDRC was unlikely to be the vehicle for a major stimulus announcement. A powerful state organ, it is more focused on implementation and oversight than central policy formation.Rory Green, head of China research at TS Lombard, said there might have been an overestimation of Beijing’s immediate plans for broader fiscal stimulus following a late September politburo statement vowing stronger support.He said the monetary stimulus, which was unveiled by the People’s Bank of China, was “pretty underwhelming” and did not reflect a change in approach to “growth by any means”. He added: “I think they’re still in the framework of stabilising rather than re-accelerating.”Xu Zhong, head of China’s interbank market regulatory body and an influential commentator, warned investors on Tuesday not to misread the PBoC’s announcement as evidence of the central bank buying shares.He also raised concerns about leveraged funds buying into stocks, a major feature of China’s 2015 stock market bubble. Many market watchers said Xu’s warning might have helped take the heat out of the market frenzy.Are there signs a fiscal package is on its way?Despite the lack of new detail from the NDRC, many observers remain hopeful that more substantive plans will be unveiled in the coming weeks, with attention coalescing around the upcoming finance ministry briefing.The NDRC on Tuesday said it was “co-ordinating with relevant departments to expand effective investment” and “fully implement and accelerate” the steps outlined by the politburo, a tone HSBC analysts said was “constructive”. They added that another “window for action” beckoned when the National People’s Congress standing committee meets towards the end of October.Goldman Sachs analysts said “any large stimulus package may require joint efforts from many key ministries”, pointing to ad hoc meetings by the finance ministry, housing regulator and politburo, one of the Chinese Communist party’s top leadership groups.CreditSights analysts warned, however, that while it was “too early to rule out any additional fiscal stimulus”, the scale “may fall short of market expectations”.What might a fiscal package look like?Market participants have proposed a wide range of estimates, from as low as Rmb1tn to as high as Rmb10tn.A reasonable base case, according to Citi, is about Rmb3tn this year, composed of Rmb1tn to make up for the shortfall in local government revenue, Rmb1tn for consumption-led growth and Rmb1tn to help recapitalise banks.Green said that while refunding China’s large banks was not “particularly necessary”, it could be a beneficial step if those funds flowed into the country’s stock of thousands of smaller banks, many of which are struggling to cope with a long-running property crisis.Nicholas Yeo, head of Chinese equities at Abrdn, stressed that the critical issue remained “not the lack of credit but the lack of demand”, highlighting that to have any lasting positive impact, any fiscal stimulus needed to result in stronger consumption.Would it be enough to help the Chinese economy?For much of the past four years, investors and Chinese residents have been hoping that the administration of President Xi Jinping will prioritise economic growth. But it remains unclear whether fiscal stimulus can restore confidence after the damage wrought by the pandemic, the property sector meltdown and Xi’s reassertion of party control over the business landscape.Aaditya Mattoo, World Bank chief economist for east Asia and the Pacific, said long-standing structural problems, such as a rapidly ageing population and limited social protection, were compounding the pain of falling property prices and slowing income growth, compelling Chinese households to save rather than spend. Such problems are unlikely to be addressed by the size or scope of the anticipated fiscal stimulus.Beijing’s hesitation to do more, many analysts said, also partly reflects concern over the need to conserve firepower for a bigger stimulus if Donald Trump, who has threatened higher tariffs on Chinese exports, wins the presidency in next month’s US election.“I do think there is some caution around the Trump factor and whether they need to be gauging the risk of a massive trade war starting next year,” Green said. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. China’s stock rally has cooled. As we suspected it would, the Chinese government’s near silence about its fiscal stimulus plans has sapped investor enthusiasm. If Beijing does start cutting checks for infrastructure and consumption supports, will the market jump again? Email us: robert.armstrong@ft.com and aiden.reiter@ft.com. Does inflation explain poor consumer sentiment?Consumer sentiment is better now than it was in the dark days of 2022, but it has been weakening since this spring, and is still at the levels of the great financial crisis. There is a reasonably good explanation for this: consumers are still reeling from inflation. If you plot the University of Michigan consumer sentiment index against CPI inflation, you see a fairly reliable inverse correlation that goes back 70 years. Here I have inverted the scale for CPI to make the relationship easier to see:Some content could not load. Check your internet connection or browser settings.Historical low points in consumer sentiment have also lined up with recessions. Inflation, that is to say, has tended to be stagflation. We can see this by comparing consumer sentiment and the unemployment rate (again, I’ve inverted unemployment here; the midpoints of official recessions are marked by dotted lines):Some content could not load. Check your internet connection or browser settings.There is a curious thing, though. This time around, except for a very brief, very violent recession in spring 2020, the link between sentiment and unemployment has been broken. Unemployment is very low, and sentiment is lousy anyway.What to make of this? One might argue that as inflation moves into the background, sentiment is set to rise further, so long as unemployment stays low. That would bode well for the economy and for markets. But I wonder if, during the pandemic years, something changed regarding how people think and feel about the economy. The packaged food earnings recessionLate last year Unhedged wrote several pieces about how packaged foods stocks had been doing remarkably badly. We struggled to understand what was going wrong:Part of it can be explained idiosyncratically. Several of the S&P food stocks are simply performing badly. Many companies in the group are only generating revenue growth because of price increases; volumes are flattish. But ConAgra, Hormel and Tyson aren’t even managing price increases. Kraft Heinz is getting price, but only at the cost of falling volumes. Both Campbell’s and Smucker’s have made big acquisitions (Rao’s pasta sauce and Hostess snacks, respectively) that investors didn’t seem to like. But these individual failures, it seems to me, don’t quite account for the stomach-churning performance of the group . . . It can’t all be down to the GLP-1 diet drugs.I knew that the food companies had continued to disappoint, but I wasn’t aware of how pervasive the malaise had become until I read several interesting posts on Adam Josephson’s Substack, As the Consumer Turns. Josephson provides this striking list of consumer companies that have cut their sales or earnings targets in the past four month or so:The numerous disappointments are visible in the performance of the S&P 500 Food Products sector, which had managed to keep up with the index in 2022, when defensives stocks were in demand: As Josephson points out, this is out of step with what otherwise looks like a strong economy driven by strong consumer spending.Part of the problem is visible in the macroeconomic data. Here is growth in several categories of real consumer expenditure since the start of the pandemic:Goods consumption growth has trailed services, and was negative for much of 2022. Food and drinks has trailed goods, and has only just returned to positive territory. Why? For goods generally, the problem could be a long echo of the pandemic lockdowns, when we all stayed at home ordering Peletons and air fryers. That was all demand pulled forward from the future, resulting in a slump that is only ending now. But it’s hard to pull forward much demand for food, unless it’s in cans.One possibility is that branded food companies have conceded market power to the big retailers and their house brands. Packaged food companies have less pricing power than they once did, and have had to concede more margin to retailers to move their products. Warren Buffett attributes the weak performance of his investment in Kraft to this phenomenon.The bad performance of food companies has not made their stocks cheap, at least not collectively. The forward price/earnings ratio of the sector, at 16, is historically normal. The bad performance of the stocks is all down to poor earnings growth. Until that changes, there seems little reason to bet on the sector. Was the strong US jobs report anomalous?On Monday, we threw some doubt on September’s job numbers, pointing out that 1) it is likely to be revised down given recent issues with the birth-death model, and 2) 254,000 is not terrific given the increasing size of the labour force. Others have echoed our scepticism. Here are some of their points:Hiring and quits: Claudia Sahm points out that August’s Jolts report showed that the hiring rate fell, reaching a level historically in line with much higher unemployment. Peter Coy adds that quitting rates are also down, at a post-pandemic low. A labour market where employees do not feel comfortable quitting their jobs, either because they fear a downturn or because other companies are not hiring, suggests some underlying weakness, despite banner jobs creation.Temporary workers and hours worked: Paul Ashworth at Capital Economics points out that the steady decline in temporary employment and hours worked is also in line with weaker payroll growth. This is good news on the inflation front, as the economy has plenty of people ready to work more if things start heating up. Average hours worked and the number of temporary employees look like they are coming back in line with their pre-pandemic trends rather than falling below it. Still, as Ashworth says, the rate of change is consistent with a weakening labour market.We are highlighting these arguments not necessarily because we are convinced by them, or because we think the jobs report was terrible. But we do think it is possible that September could have been an anomaly (even as we hope that it wasn’t). (Reiter and Armstrong)One good readIs it stylish to be fit?FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereChris Giles on Central Banks — Vital news and views on what central banks are thinking, inflation, interest rates and money. Sign up here More

The decision was in line with market pricing and most economists’ expectations, with 17 of 28 economists in a Reuters poll having forecast the Reserve Bank of New Zealand (RBNZ) to cut the benchmark rate by half a percentage point. “The Committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate,” the central bank said in its policy statement. This is the second consecutive meeting in which the central bank has cut the official cash rate. More

The RBNZ cut its official cash rate to 4.75% from 5.25%, in line with market expectations. Wednesday’s cut was driven chiefly by increasing confidence among RBNZ policymakers that consumer price index inflation will fall within the bank’s 1% to 3% target range in the September quarter, the central bank said in a statement. But the central bank also signaled that future rate changes would be dependent on the path of the economy, and that at 4.75%, the official cash rate was “still restrictive.” The RBNZ noted that the New Zealand economy remained weak, and that the labor market was also set to soften in the coming months. Wednesday’s cut is the RBNZ’s second cut this year, as it kickstarted an easing cycle in the face of softening inflation and cooling economic growth. The central bank had cut rates by 25 bps in August, and signaled more potential cuts. But its comments on Wednesday suggested that future rate cuts may not be as certain, with the RBNZ now stepping back to gauge the impact of its rate cuts on the economy.The New Zealand dollar weakened after the cut, with the NZDUSD pair falling nearly 0.5%. More

“It was timely and consistent” with the Fed’s two mandates of attaining 2% inflation and maximum employment, Jefferson said at Davidson College in North Carolina. The Fed’s success in meeting the first mandate by bringing down inflation, he said, allowed the U.S. central bank “to pay increased attention to the other side of the mandate.”Jefferson voted in September with the majority of his colleagues to reduce the Fed’s policy rate, marking a turning point in what had been a two-year battle against inflation that took U.S. borrowing costs to their highest levels in decades. “Our goal over the past two years has been to bring inflation down without causing an undue or unorderly increase in the unemployment rate,” Jefferson said. “And that’s why we held the policy rate at a very high level for an extended period of time, because we wanted to bring inflation down and the labor market was performing very well.” Unemployment, rather than rising as the Fed raised rates as was the case in prior battles with inflation, had held steadily under 4% for most of that time. “The performance of the labor market gave us the headroom, if you will, to keep policy … in restrictive territory for a long period of time,” Jefferson said. But unemployment’s upward drift – it is now 4.1% – and the decline in inflation to nearer to the Fed’s 2% goal made it appropriate to “recalibrate” policy, he said. More