Tell me something good — Much like funk band Rufus sang with Chaka Khan in 1974, markets were hoping that Federal Reserve Chair Jerome Powell would “tell me something good” during his annual address to the Jackson Hole Economic Policy Symposium last Friday. And much to the markets’ delight, Powell struck a decidedly dovish tone in his speech, sending equity values higher and Treasury yields lower by the end of Friday’s trading session.
From his podium in Wyoming, Powell essentially shifted his messaging and led many to expect a rate cut of at least 25 basis points (bps) at the upcoming September meeting of the Federal Open Market Committee (FOMC). Before Powell’s speech, federal funds rate futures were pricing in a 65% chance of a cut in September, which subsequently increased to 85% following the speech.
Powell had yet to comment publicly on the weak August 1 jobs report, which indicated that a monthly average of only 35,000 new jobs were added from May through July. Powell, however, finally addressed the jobs report on Friday, saying that the status of the current labor market represents a “shifting balance of risks” which “may warrant adjusting our policy stance.”
This language was enough to trigger a market rally in Treasuries that pushed the entire yield curve lower (Figure 1). The important 10-year Treasury note yield also dropped by eight bps on the day. According to former St. Louis Fed President James Bullard, “[Powell] used the speech to solidify expectations for [a cut of] 25 bps in September. He leaned into the most recent labor market report, which was very soft. I think that [a cut] is a done deal.”
Amid Powell’s pivot in messaging is the reality of political musical chairs among Federal Reserve governors. As has been widely reported, President Trump plans to replace Powell with someone more dovish when his term as Fed Chair expires in May 2026.
The White House recently released a list of 11 finalists. The list features current and former Fed officials, as well as a few economists with no Fed experience. For months, the shortlist of candidates included former Fed Governor Kevin Warsh, Trump economic adviser Kevin Hassett, current Fed Governor Christopher Waller, and Treasury Secretary Scott Bessent (whose candidacy has since been withdrawn). The expanded list now includes Fed Vice Chairs Michelle Bowman and Philip Jefferson, Dallas Fed President Lorie Logan, former Fed Governor Larry Lindsey, the aforementioned James Bullard, and private-sector economists Marc Sumerlin (Evenflow Macro), Rick Rieder (BlackRock), and David Zervos (Jefferies).
Bloomberg reported that broadening the scope of candidates under consideration to extend beyond Trump loyalists could give administration officials the chance to make their case privately to more Fed officials that it’s time to lower rates. Along those lines, Bessent said that the list of potential Powell replacements now includes 11 “very strong candidates,” whom he’ll meet in the coming weeks and will then narrow down the list further to bring to Trump. “I am looking forward to meeting them with a very open mind,” Bessent said.
In addition to Powell’s seat, Fed Governor Adriana Kugler’s resignation became effective on August 8. As discussed in last week’s Talking Points, Trump nominated Stephen Miran, chair of the Council of Economic Advisors, to fill her term until it expires on January 31. Miran’s nomination will likely come before the Senate for confirmation in early September, before the next FOMC meeting. However, in the final quarter of 2025, Trump is widely expected to nominate someone else to the position for the new 14-year term.
This week’s headlines also told a dramatic tale about a third Fed Governor seat potentially being vacated. Fed Governor Lisa Cook found herself in the hot seat last week after Federal Housing Finance Agency (FHFA) director Bill Pulte urged Attorney General Pam Bondi to investigate some of Cook’s mortgage loan applications for fraud. Cook—who denies the allegations and whose term lasts until 2038—said that she has “no intention of being bullied to step down.”
While Pulte’s allegations have yet to be investigated—and thus confirmed or denied—it’s worth noting that presidents can fire Fed officials “for cause.” On Friday, Trump said: “What she [Cook] did was bad. So I’ll fire her if she doesn’t resign.”
If Cook were to be fired and replaced by a Trump pick, four of the seven members of the Federal Reserve Board of Governors would then be Trump appointees. According to former Fed economist Claudia Sahm, “This is a new attempt of the administration to gain more control over the Fed. They’re pulling as many different levers as they can find to get that control.”
Volume and spreads in the housing sector — Year to date (YTD), new-issue volume is up considerably over the prior year, as Figures 2 and 3 show.
As in 2024, Fannie Mae DUS volume in the first quarter of 2025 was tepid. Yet in April through June 2025, volume was up by 89% over the same period in 2024. The strong second-quarter production pushed the seven-month YTD tally for 2025 to a 45% increase over 2024. In fact, Fannie DUS volume was higher every month in 2025, compared to the respective 2024 volume. The production growth in 2025 also prompted some market watchers to predict that Fannie Mae DUS volume will hit FHFA’s annual cap of $70 billion.
Project loans that are approved by the Department of Housing and Urban Development (HUD) for Federal Housing Administration (FHA) insurance are subsequently securitized with a Ginnie Mae guarantee before sale to fixed-income investors. HUD releases its FHA project loan volume on a quarterly basis, so there’s no July production to report yet. But as Figure 3 shows, Ginnie Mae volume in 2025 is higher than in 2024 in five of six months; YTD, 2025 volume is running 36% above 2024.
A significant increase in mortgage production volume frequently leads to higher spreads from fixed-income investors. That is true in some respects during YTD 2025, too. Investor spreads were highest in mid-April following U.S. trade war-induced stock and bond market selloffs. Investor spreads peaked on, or about, April 11 and have generally fallen since.
Fannie Mae DUS spreads—as measured by a mortgage-backed security (MBS) for a standard market rate multi-family project with a 10-year term/9.5-year yield maintenance/30-year amortization (10/9.5)— increased by 26 bps from December 31, 2024, to April 11, 2025. Yet such spreads have since decreased by 22 bps, putting the YTD difference just four bps wider. Figures 4 and 5 show these trends.
Ginnie Mae MBS spreads exhibited a similar pattern in 2025: Spreads peaked in mid-April and have rallied since. However, spreads on Ginnie Mae project loans have been considerably more volatile than Fannie DUS and have a long way to go to approach year-end 2024 levels. For example, spreads on Ginnie Mae MBS increased by 47 bps from December 31, 2024, to April 11, 2025. They have since decreased by 27 bps, putting the YTD difference 20 bps wider. Figures 6 through 8 show these trends.
Historically, the Fed’s pivot to looser monetary policy involves a series of rate cuts. The market currently expects two 25 bps cuts in 2025, followed by another pair of 25 bps cuts in 2026. We believe, all else equal, that MBS spreads in our multifamily and seniors housing sector are likely to decrease during this period.
FROM THE DESK
Agency CMBS — New issue Fannie DUS volume came in around $1.2 billion last week—about 15% below the four-week trailing average, but roughly 24% above the YTD weekly average. Week over week, Fannie spreads were flat to one bps tighter. Ginnie Mae volume returned to a more normal weekly range ($200-300 million), after a roughly $1 billion surge sparked by the weak July jobs report (released in early August). Ginnie spreads continued to grind tighter.
Municipals — AAA tax-exempt yields were slightly lower on the front end of the curve but were higher on the long end the yield curve, week over week. While the municipal bond market has seen new-issuance volume consistently exceed $12 billion on a weekly basis, investors finally got a welcome breather last week, when only around $6 billion came to market. Meanwhile, spreads in the housing sector remained consistent last week compared to the previous few weeks. Municipal bond funds reverted back to positive, with inflows of $2.30 billion last week (YTD inflows of $12.55 billion); high-yield funds took in about 87%, or $2 billion, of the total.
The information contained herein, including any expression of opinion, has been obtained from, or is based upon, resources believed to be reliable, but is not guaranteed as to accuracy or completeness. This is not intended to be an offer to buy or sell or a solicitation of an offer to buy or sell securities, if any referred to herein. Lument Securities, LLC may from time to time have a position in one or more of any securities mentioned herein. Lument Securities, LLC or one of its affiliates may from time to time perform investment banking or other business for any company mentioned.
