In this episode of Optimal Insights, host Jim Glennon is joined by Alex Hebner and James Cahill for an extended market update amid rapidly evolving geopolitical and economic conditions. The team breaks down the latest FOMC meeting, including Chairman Powell’s likely final appearance and the Fed’s acknowledgment that inflation progress has stalled.

They analyze how the conflict in the Middle East is disrupting global oil supply routes, driving crude prices sharply higher, and pushing OBMMI mortgage rates toward 6.4% while the 10‑year Treasury hovers near 4.4%. The discussion covers de‑embargoed oil shipments, Jones Act waivers, challenges for global allies facing shrinking reserves, and the potential for U.S. Treasury market fluctuations if foreign holders liquidate assets to secure energy supplies.

The team also outlines critical short‑term risks if diplomatic progress stalls, explores how supply chain destruction could extend inflationary pressure for months, and previews key economic releases including jobless claims and consumer sentiment.

Optimal Insights Team:

1. Jim Glennon, Senior Vice President of Hedging and Trading Operations
2. Alex Hebner, Hedge Account Manager
3. James Cahill, MSF/MSR Account Manager

Production Team:

1. Executive Producer: Sara Holtz
2. Producer: Matt Gilhooly

Commentary included in the podcast shall not be construed as, nor is Optimal Blue providing, any legal, trading, hedging, or financial advice.

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Operations at Optimal Blue. Our clients and industry partners have long relied on Optimal Blue for trusted insights and commentary. And these podcasts are an evolution of our commitment to keeping the industry informed. Let's dive into today's episode.

Welcome everybody. A lot to talk about today. We've got a great show, as always, in the interest of making sure you know what to watch.

Whether you're an originator, a capital markets person, or just someone interested in the mortgage industry and some great market commentary, we're going to do a, just a kind of a big market update today. We don't have any kind of special segment. We're just going to get right into it. We're going to talk about the Fed meeting last week. We're going to get into geopolitics quite a bit today too. That's really right now what's driving interest rates is what's going on over in the Middle East. So before we get to the market update, again, back to rates, OBMMI much higher.

this week, 6.4. So we've come from the five handle to half a point higher, roughly at 6.4 throughout this still relatively short conflict in the Middle East. The 10 year is at 4.4. So again, up about half a point from some of the lows that we saw earlier this year. Just rates don't like this sort of conflict, especially as it relates to oil prices and general inflation expectations. We'll get into that quite a bit here in a couple of minutes. Let's go check in with

James and Alex, let's do the market update.

Welcome Alex and James. Thank you for being here. Good to be back for me after a week off. we got an extended market update for everybody today. Probably good timing. There is a bit to talk about. Not a lot of different subjects to talk about, but a lot within a few subjects, I would say. Why don't we just start with what's already done and on paper. We had the FOMC.

meeting last week and the announcement on Wednesday as usual, no rate change, but a lot happening with the Fed right now, right? We potentially have Powell on his way out. This may have been his last official meeting as the chairperson. some words on his way out the door. don't know, Alex, you were talking about this a little bit earlier. What'd you make of the Fed presser after the announcement on Wednesday?

Yeah, no, like you said, no rate cut as expected out of this FOMC meeting, even pre Iran conflict. This one was expected to, hold rates steady. You know, looking out over the year, we've seen any chance for rate cut evaporate as this conflict has evolved. yeah, I was, was kind of noting during Powell's presser, kind of made an admission that I think he has been kind of kicking the can on in his, his other pressers.

prior to this, where he kind of, the words he used were, we haven't made the progress that we would have liked to on inflation. I do find it kind of funny that he says this kind of, as he's walking out the door officially, this was his last official meeting, it very well might be his last meeting, yet to see if Warsh gets confirmed in time to take place on schedule. But yeah, he said, we haven't made the progress we'd like to see on inflation. I think this kind of,

Right.

re anchors the conversations are in the the Fed around inflation, starting to tackle that two point something inflation rate that we've been seeing the last few years. You know, I think the markets been very complicit and fine seeing that two point something inflation readings so long as everything else is going all right, you know, jobs haven't been great, but they haven't been terrible. You know, equities have been continuing to outperform.

Mm-hmm.

economy hasn't taken a real beating, so to say. And so they've been okay letting inflation run a little bit hot. before we started recording, kind of, know, pals, maybe the babysitter who's walking out the door and like, you know, hey, by the way, the stove's on. know, depending on your inflation outlook, yeah, it's somewhere between a small fire and I just forgot to turn the stove So yeah, I think it

⁓ There's a small fire burning in the kitchen. Good night.

at least sets the stage for his successor or him, maybe later in the year here to reorient the conversation towards inflation. And I think evolution of events that we've seen in the energy space and geopolitically will lend themselves to making that conversation one that we need to highlight.

Yeah. mean, inflation, once again, like you said in the spotlight and we've been hanging on this precipice for the last two years. feels like this two point something, which we've never been able to get to that, you 1.7 to 2.2, which is kind of where the fed on paper likes to see inflation. And as we've been able to accomplish that for many years before the, kind of the excesses of COVID and, know, between policy and of the fed and policy of the white house, just rampant, you know, nine, 10 % inflation, but just can't get off that.

cliff, and then now we're heading into, let's just finish up on the fed, right? No official word yet. If charges are going to be dropped against chairman Powell, therefore, Warsh may not be confirmed in the near future. So there's two scenarios, right? Either Powell continues as the fed chairman or Warsh comes in, or there could be a third candidate, I suppose, if Warsh is knocked down for other reasons. So whoever steps into this thing is going to step into a

into a bit of a vat of, well, I was gonna use the vat of boiling oil, if you will.

And then on top of that, then you have the war in Iran, right? Or the war launched against Iran. That's now become a broader conflict in that whole region. think everybody's aware of it at this point, but it's, it's sent oil prices surging, which has a direct effect and an indirect effect on inflation, right? Everything things are made from petroleum, first of all, but also things get to where you are to buy them by way of.

gas or diesel or whatever, right? Whether they come on a plane or a boat or a train. just starting to feel that panic again, and that's driving rates up as well, right? We're close to 4.4 on the 10 year today, which is about a half point higher than anybody would like to see and higher than some of the lows that we've seen also pushing mortgage rates up, which our industry doesn't like to see. So what's the, I guess this morning, like,

There's been a little bit of a change. James, I think you were reading about this today. It's still a little bit up in the air. President Trump came out this morning and said, hold on, you know, after the kind of a market meltdown on Friday, hold on, going to, we're having suddenly progressive talks with the Iranians. We're trying to make a deal. We're going to hold, we're going to pause on bombing for a moment.

Yeah, you know, as we've kind of covered, so it should take four weeks before all the oil reserves, you know, coming out if it totally stops are halted. And then we have strategic reserves and other countries have their own. We start digging into that. And so there is time, but it takes four to six weeks to get everything back online. And so we're entering the fourth week of this war. So there is a real turning point here over the next, you know, five or so days.

I saw a number of articles that were talking about, if we make this into the first week of April, third world countries are going to be without oil. They will be running out of energy. You'll see what's going on in Cuba. You will see in other places. And that's when lot of Europe too is going to start being squeezed a lot. The Trump administration came out this morning and said that, instead of bombing,

the energy infrastructure in the next 24 or so hours, they're going to give Iran five more days because there's been some progressive talks. Sounds like everyone wants to make a deal, settle things out, which that would be great if we could, you know, land this plane in the next week, you know, five days, get oil coming through again, then we could probably avoid the worst of what could come. You know, everyone's already seen like $4 at the gas station, but we could avoid seeing six, seven.

Mm-hmm.

But I did also see that some Iranian officials came out this morning and said, we have not been having direct talks. there's a little bit of a, you know, I'm sure they have, they don't, they have to save face and no one wants to admit that as the underdog that you might be bowing a little bit, but it's not, ⁓ it's not, the market was rallying this morning. That news came out and it started to slide back a bit. So everyone's tempering their expectations.

Yeah.

Yeah, you would think it would be in their best interest to say that surprised us, but let's yes, let's sit down. Let's let's talk. ⁓ Yeah. So yeah, it's it's it is disturbing to think that this could really turn into ⁓ a bigger humanitarian crisis. And we, know, versus just releasing oil from certain reserves to lower prices a little bit. A lot of these countries, as you mentioned, third world countries, even Europe, they don't have a ton of reserves like they will have to make.

Yeah, we sure have. Yeah, sounds great.

difficult choices because they're not producing and they don't have, they have nothing like on hand to start producing gasoline and other products that come to other fuel products that come through the Straits and that are maybe dependent upon some of the ports that have been bombed by the Iranians. yeah, hopefully the words that Trump put out this morning are real and we're really moving towards something. Cause as you said, you can start getting into April, then it becomes a bigger.

crisis and I think we see rates go higher from here. A lot of folks will tell you that, you know, 4.4 on the 10 years, a pretty critical level. we go higher from there, it's kind of a, it's a follow the money moment as we've talked about a lot on this podcast, right? If you see interest rates moving a certain way or equities moving a certain way, there's probably going to be geopolitical decisions that are going to be made based on that. It's not just suspicious. It's likely that

The president came out this morning and said, we're starting to make progress because of the meltdown in the market on Friday. They kind of capped off three weeks of, of the market digesting what's happening in Iran. We, we said a few weeks ago, it was going to take a few weeks for the markets to figure it out and they seem to have gotten I don't know. I guess it's just continue to follow the money right now and hope that we don't, you we don't blow through $150 a barrel and four and a half on the 10 year.

Otherwise, what does it take to tamp that back down and bring oil back online and all this if we get into April and May?

⁓ Alex and I were kind of kicking this around before the call, but you know, the United States is the next exporter of oil. So we have enough to pay for ourselves and then actually send it out. And so if things got particularly bad, well, we could keep some more of that for ourselves and try and keep the gas prices a little down. Now, as a global commodity, it's

a little diff, you would need an executive order or something to say, you actually can't sell this much abroad, something to stop it. Otherwise you do just have global market price on oil, but you could separate the two. But the kind of issue with that is if you're slowing that down, now Europe can't get that American oil, know, hey, well, they have all these treasury bonds and maybe they need some liquid cash right now to pay for extra oil. And you know, maybe United States, shouldn't do that. And so there's a... ⁓

Mm-hmm.

There's a tango that we are stuck in with our allies.

That's an interesting one too. So folks may have to liquidate American assets to buy American oil, which would send rates higher potentially given that roughly a quarter of US treasuries are owned outside the US. So again, following the money.

especially largely Japan who is they will run out of oil. I think it's like an eight week reserve. So

Mm-hmm.

And keep in mind, mean, it's the petrodollar system. It's not just American oil coming from West Texas that needs to be bought in dollars. Any oil, mean, BRICS would love to change that. you know, by and large, if you're buying oil coming out of the Middle East, isn't embargoed Iranian oil. If you're buying Saudi Arabian oil, you also need US dollars for that. That's why the US dollar has performed so strongly over the past three weeks. There's been a rush for dollars, even if we're even just consuming the same amount of oil. you know, price per barrel went up 20, 30 bucks.

You

Mm-hmm.

you need 20, 30 more dollars, US dollars per barrel to purchase that.

Right. So that pushes the dollar up, which I don't know, could potentially be a good thing, but it can be difficult for, Oh, other pieces of the trade balance.

Yeah, as with all these things, you pull on one string and you watch 12 different things move. But no, no, James is, I think, dead on the head. The US will be insulated because we have an abundance of natural resources. We are currently a net exporter of fossil fuels, but our European allies will absolutely feel the pain from this. And as he said, they could make us feel some of that squeeze as well in the Treasury markets.

Right.

Right. mean, and speaking of our European allies, it's probably also worth noting that maybe in an effort to release the chokehold on oil a little bit or to lower prices, we also announced that we were de-embargoing Russian oil and oil from some other countries where we had previously, the BRICS mostly, where we had previously been holding restrictions on that. We basically lifted those, which I don't think the Europeans would be

too happy about, especially given the war that's going on still in the Ukraine.

Yeah, absolutely. There were three big announcements last week that were all intended to kind of calm the global energy markets. The two you mentioned there, Russian oil that is at sea currently, so already on a ship, was de-embargoed in addition to Iranian oil that's already on a ship. And I believe it's a 30-day waiver for both, so you have a month where you can buy that without getting cut off from the US financial system. The third one was Trump waived the Jones Act, which is essentially this act states that it...

Mm-hmm.

Anything transited between two US ports has to be on a US flagged ship that is manned by US personnel. So just another one that if you needed to, a particular tanker that has a Thai crew or something, it's owned by a Greek shipping magnet or something that could transit. Again, it just opens up the possibilities of the ships that can transit between US ports.

Right.

So it seems like we're doing everything we can policy wise to keep oil prices down. But as long as the Iranians keep pounding the Strait of Hormuz, which is where more than half of all the world's oil goes through, there's not going to be an end to this kind of scary stalemate until there's some real diplomacy that goes on or somehow the US and its allies.

take control of that strait somehow, that's another, you know, can see a lot of videos online about how that could be possible, how that could get done. it involves boots on the ground, which I don't think anybody wants to see. It would involve literally people along the shorelines armed, holding back these attacks that have been going on and attacking some of these ships that are potentially laying mines throughout the, throughout the strait. Wild times.

All right, what else on this gentleman?

think that kind of covers the development of the last At the end of the day, I think my final statement would just be, we're not going to get back to where we were at the end of February for a good chunk of time now, even if I said this on the last couple of podcasts, but even if we get a peace agreement with strong enforcement mechanisms in place right now, it's going to take at least a month to turn on.

refineries and get things pumping again. And in addition to that, over the course of the last week, Iran has scored some hits on some pretty key infrastructure throughout the Gulf. And I know a Qatar energy facility, this one is their natural gas, but they were saying that the repairs on that could take upward of a year and those repairs really can't stop until the bombs stop falling. going to be long, long lag times on a lot of this stuff.

But at the end of the day, peace is the only way we're gonna get through to lower rates again.

Right. So safe to say there's some inflationary pressure that's going to continue from not just the initial delays of oil and fuels getting through the Middle East, but now all the damage that's been done rebuilding that, bringing factories back online or replacing or moving that production somewhere else.

Yep.

I've definitely heard the analysis of, you know, kind of a game theory with this. At a certain point, you know, Iran bombs Qatar, the Emirates, their oil. So you no longer have those facilities. It's going to take longer to rebuild them. The United States, Israel might bomb Iran's back. But once those are gone, that's a sunk cost, right? Like right now, there's a reason to sue for peace. It's, hey, I can sell this oil. once those, once that infrastructure is destroyed,

Might as well keep going, right? You're, there's no backing out. You've lost what you had. So I think that that is a lot of, and the conversation today that, we were going to bomb Iran's power grid and then, we're going to them a few more days. It's a bit of a nuclear option here is, Hey, we might, you know, really hit the oil fields and put you in a decade long tough spot. That's a, it's a dangerous, ⁓ escalation.

Interesting.

Mm-hmm.

but it does seem to be based on the word of the administration trending in the right direction.

Yeah. So you're saying the game theory folks would say, presumably this five day negotiation either leads to some form of de-escalation or we as the U S and Israel have, as we have less and less to lose from our allies in that region, like we'll just bomb them back into the stone age in response because we have nothing. They've already blown everything up that we want over there. that the?

it

I'd say more so the other way is, you hey, we have the opportunity to keep escalating. once we, know, cargo island, we bombed all the military assets on it, but we didn't blow up the oil there, ⁓ or the storage, right? But those are still targets. And if they start going after stuff like that, then Iran loses, why would they sue for peace? You know, what it's going to take them a decade to rebuild all of this anyways, you know,

I see.

all of your precious infrastructure is gone, why would you quit early?

Right. Okay. So Iran has a little bit left to lose at this point. And that's what we're going to threaten. We already are publicly threatening.

That's how I put it, yeah.

All right.

Yeah. All right. Well, like we said, everybody, keep this is something that's going to develop throughout today. So by the time this podcast comes out, comes out, we're likely going to be in the same spot, but continue watching throughout this week. If we get any major news, we'll probably have a bonus podcast, but otherwise, you know, be watching for some sort of deescalation this week. Otherwise we go into April and we probably see higher inflation. We probably see higher rates and this was probably a protracted.

conflict as many had feared.

All right. Anything else to look out for this week, gentlemen? Just the usual numbers, right? We've got jobless claims coming out later in the week.

Yeah, yeah, we'll get ⁓ our usual weekly Douglas claims on Thursday. And believe there's a couple of speaking engagements. know Myron's speaking, was it today? believe it's today Myron is speaking in addition to Goals B throughout the week.

I believe there's one more on Friday. yeah, I mean, I am with you, Jim, think. Continue to monitor those geopolitical headlines. I think if anything, the Fed speakers will addressing some questions on the geopolitical headlines. So you can kind of get some insight there, but at the end of the day, the market and the race that you're seeing are going to be determined by what's going on abroad right now.

Mm-hmm.

Yeah, worth noting that Myron still voted for a cut last week, which he may be asked to explain the reasoning there, right? Because he thinks that we're going to see a, I don't know, somehow better inflation numbers going into the second quarter.

Good.

Only other

item is consumer sentiment this week. ⁓ And we were kicking this back and forth before we hopped on, but that survey was taken before the war started, but probably unchanged then around mid fifties.

Mm-hmm.

Right. So barely over 50, which is kind of the inflection point, right? And that was just before the war started. So likely, even if we see the expectation of 54, 55, the next print that'll come out in late April may not be as to what's going on right now. think just because of gasoline, gasoline does drive a lot of consumer sentiment. It's just one of those things that you can look at in any neighborhood or

municipality and people can point at it and say don't like the way things are going because I just feel it when I fill up my automobile or you my truck.

All right. Good update today, gentlemen. As always, we'll keep an eye on everything for you out there. And yeah, like I said, we may hold a special episode here midweek if anything develops. Otherwise we will talk to you next week. Thanks fellas.

All right, great update today. Thank you, Alex. Thank you, James. That's it for today. Join us next week for another episode of Optimal Insights, where we'll continue to provide you with the latest market analysis and insights to help you stay ahead. Check out our full videos on YouTube. You can also find each episode on all major podcast platforms. Thanks again for tuning in to Optimal Insights.