Orion’s brokers know that the Federal Reserve does not set any mortgage rates. Those are set by supply and demand, credit guidelines, and the value of servicing. But our brokers should know that the same factors that influence the decision making by the Federal Reserve Open Market Committee (FOMC) which result in itacting on policy impact the actions of investors and mortgage-backed security traders.

Orion’s management mentions this because the focus of the markets this week will be on Jackson Hole and the tone from Federal Reserve members at their annual symposium. Most believe that Federal Reserve Chairman Jerome Powell will use his Jackson Hole speech this week to stress that the central bank is going to bring down the high U.S. inflation rate even if it means a recession.

Recessions mean lower rates, good news for our brokers. The FOMC appears determined to bring inflation down even though members know they’ll be running substantial risks of a weaker short-term growth outlook than they would like. We know that from the minutes of the Fed’s July meeting that were released last Wednesday. According to the minutes, Fed officials “recognized that policy firming couldslow the pace of economic growth, but they saw the return of inflation to 2% as critical to achieving maximum employment on a sustained basis.”

Given that Fed Chairman Jerome Powell is expected to dig in a bit and remind the markets of his “hawkish” credentials, willing to fight inflation by raising rates, the tone from Powell could shift investor sentiment if he reiterates that the risks of inflation are more significant than the risk of a hard landing for the U.S. economy. The odds of various overnight Fed Funds target rate changes shift every day, but the Fed is still anticipated to raise the target range for the federal funds rate by 50 or 75 points in September and follow with 25 or 50 points hikes in November and December. Fed watchers are also looking for more details on the Fed's balance sheet reduction strategy. This is especially important if the Fed begins selling mortgage-backed securities from its balance sheet.

The yearly Federal Reserve's Jackson Hole Symposium could make headlines with Orion’s management and our brokers looking for clues on the pace of rate hikes. The next time that the FOMC actually meetsis September 20-21, so we have another month to talk ruminate on what the Fedwill do, but we can certainly look for clues this week during the meetings in Jackson Hole.

‍