In this week’s episode of Optimal Insights, Jim Glennon, Alex Hebner, James Cahill, and Kevin Foley discuss the Fed’s final rate cut of 2025, labor market uncertainty, and the biggest economic events shaping mortgage rates. They share expert insights on tariffs, tech-driven capital spending, housing trends, and regulatory changes, offering a clear picture of what to expect in 2026.

Key Points Discussed:

• Market update and Fed policy outlook
• Fed’s final 2025 rate cut and hawkish tone
• Labor market uncertainty and job revisions
• Upward pressure on rates from tech investment, tariffs, and volatility
• Downward pressure from global conflicts and softening labor market
• Housing market slowdown and regional trends
• Regulatory changes and FHFA’s creative proposals
• AI’s influence on economic dynamics and capital spending

Optimal Insights Team:

• Jim Glennon, Senior Vice President of Hedging and Trading Operations
• Alex Hebner, Hedge Account Manager
• James Cahill, MSF/MSR Account Manager
• Kevin Foley, Director of Product Management

Production Team:

• Executive Producer: Sara Holtz
• 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.

Mentioned in this episode:

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if we're seeing a weakening labor force, bond market, treasuries have been labor market pretty closely. So if there are indications that the labor market is weaker than we think it actually is, then that could be beneficial for mortgage rates going into 2026.

Welcome to Optimal Insights. I'm your host, Jim Glennon, Senior Vice President of Hedging and Trading Client Services 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. It is December 15th, rolling up on the end of the year here. A really packed, really good episode for you today. We'll get right into a market update here in a few moments. A lot going on there finally.

first, just a little bit of data, OBMMI conventional 30 years, six and a quarter, 10 year, still just above four, 4.18. So about a 200 basis point spread there, which is nice. It's quite a bit narrower than it was this time last year, but still not quite able to break into the five handle, still really good volume. have easily 40 % more volume now than we did this time last year. Typically going into the holidays, we're completely anemic, but looking pretty good.

Okay. Before we get into our year in review, we got a nice smattering of information to talk about just in this last week or so, and then ⁓ a big number coming out tomorrow, right? Alex, you want to the FOMC results from last week?

Yeah, so as expected, the FOMC delivered a 25 base point rate cut. So rounding out the year with 75 base points in total cuts. then Powell came out and then didn't seem to offend any market views. I think probably the of this, wouldn't call it a shock, but maybe just a small surprise was that the Fed said that they were going begin with short-term bill purchases again.

Right? So looking to steepen the curve, didn't offend the markets, even by kind of saying what everybody was thinking, which is this is a hawkish cut, right? Like this is potentially the last one for a while. And a good chunk of the fed voters are thinking maybe inflation is still a problem. We don't necessarily need to loosen the belt very far.

Yeah, it does seem to be swinging that way. The one vote change that occurred at this meeting was Golesby joined Schmidt in calling for no cut and a pause, pause in any movement. So now it's Schmidt and Golesby there for the pause. Everyone else, Sands calling for the quarter point and Myron called for his usual aggressive 50 basis points.

Mm-hmm.

Yes, indeed he did. And he will probably continue to do that. Although it's, it's been a little less, you still not seeing the haters on like X and, truth social, like we were back when it's almost seemed like they were trying to beat the drum to the point where they thought maybe Powell would just leave, right. Or give, somehow get fired for cause, but that, that seems to have slowed down. And now you've got half, half the fed, not necessarily fully on board with slashing.

interest rates.

Yeah, yeah, I think the labor pressures are far more at the forefront. It doesn't seem like we've had a serious conversation about inflation really this year. know, the CPI, PPI numbers come and go, it really hasn't reared its head so much this year. It's floated between 2.5 and 3%, and 3 % is the new 2%. So, and again, every meeting they say, we're okay with this. We're keeping our eye on it, but we're okay with this.

Mm-hmm.

Right. mean, speaking of jobs, we're getting a number tomorrow, finally, an almost on time number, right? We'll get November, And then at the same time, there's, there was a little bit of, of noise from Jerome Powell himself, just about surrounding how we count jobless claims, right? That was kind of an interesting coincidence with the numbers coming out tomorrow. So I guess what are we expecting tomorrow? And then how might some of the comments from Jerome Powell about

labor kind of feed into what we see going into the end of the year, going into next year.

Yeah, it's expected to be a relatively weak jobs report. It's suspected to show 50,000 new jobs in the economy. This kind of against a Wall Street Journal article that I think you're referring to that came out last week that their investigation showed and maybe some slight whistleblower activity there. inside the BLS, it appears are some admissions that

They don't think the jobs numbers have been as accurate as they could be. cited some issues with the birth death model. So just roughly how many people are in the picture for the model in addition to just like chronic shortages on labor, know, due to doge cuts and the government shutdown. They're definitely overworked over there. We talked about in the middle of the summer about that they've been using interpolation far more often than they would like where, know.

You know, they don't particularly have, you know, like an inflation metric for a particular city. They might just lean on that region of the country's inflation metric for the city far more than they otherwise would. And that seems to be affecting all the metrics that are coming out. This Wall Street Journal article, the kind of the headline for it was that if the kind of birth death model and everything they said is as inaccurate as they say, there's probably more of a contraction in labor force than was otherwise.

Mm-hmm.

out by the BLS to the tune of maybe 20-30,000 jobs.

Right. We've seen that cited before. feel like another aspect was, especially in this economy, like newer and or smaller businesses aren't being surveyed at all. So you could have small businesses of, you know, 20 to 50 people that are going out of business or slashing jobs because of whatever reason, economic slowdown tariffs, just bad business cycle. And those are not being counted at all. Right. So there could be a lot of that effect if we're only looking at large

thousand plus employee businesses, we could be missing a big part of that picture that there's going to be quicker to hire and fire people in the labor force.

Yeah, I we were talking about those numbers last week about how it appeared that there seemed to be a definite contraction in the small business environment. And I'm with you. think if a business goes out of business, the last thing you're going to do is respond to ⁓ someone polling on your current trends. yeah, there definitely could be some more hidden pain there.

And especially over the course of this year, we've seen a number of larger job revisions. A lot of that's going to be chalked up to the tariffs and just market volatility that we've seen. But this has been kind of a complaint of people for a while right now, right? Like 22, 23, 24 people felt, hey, maybe these job numbers are kind of a little overstated here. Now in 2025, we've seen layoffs

all over the market, but they don't seem to translate as well. It's kind of a, does this square the circle? And just this admission that, hey, we need to look at this model again and tighten it up a bit. I think in the Wall Street Journal, like they even said, like the plan is for 26 to tighten this up. It's kind of a known that they have. So that, lines up very well with what we've seen and have been expecting. So.

Mm.

Yeah, and all of this just to tie it back to the mortgage market, obviously, if we're seeing a weakening labor force, bond market, the treasuries have been following labor market pretty closely. So if there are indications that the labor market is weaker than we think it actually is, then that could be beneficial for mortgage rates going into 2026. have to keep an eye on it. certainly seems like the main headline that I'm taking away is

There is just much more uncertainty around the labor market as we go into the end of the year than maybe we were expecting to see.

Right. Yeah. We're in that uncomfortable position always where we're kind of, you know, if there's some issues with the labor market, we are going to benefit from that. As you said, Kevin, we're going to get, should get lower interest rates. but obviously don't want anybody to suffer and don't want the economy to slow down or even contract or have that recession that folks have been predicting for, I don't know, the last decade.

All right. Anything else on just the data front this week? looks like some, some fed speak, which will be timely with the unemployment number coming out. ⁓ we'll have CPI also this week, along with jobless claims. That's a big one. Jobless claims have ticked up pretty heavily, right? I've seen that like that number doesn't get enough airplay. It probably should have got even more during the

don't know if it spiked beyond 2021, but it did return to levels we were seeing in the late summer, early fall. We were saying like a quarter million initial jobless claims for a week is kind of that tipping point that we would call out as, okay, like there's a major issue in the labor as of last week, it was back to 223, four week trailing average, which is

Mm-hmm.

probably the better one to use all year round, but especially this time of year, just because there's so much seasonal hiring and letting go, especially in January once the holiday rush is over. we saw 216,000 on the four-week trailing average, which isn't really in line with those headline layoffs that we've seen some larger technology firms.

Right. Yeah. The job, jobless claims in some ways is a better number because it doesn't rely on a survey. It's actually people who have applied for unemployment benefits. Right. But we could be missing some people in that, right. Especially know, again, back to some of the immigration issues and the, you know, folks staying home and choosing not to go to work because of some of the situations with ICE and all of that.

possible you're not looking to collect benefits if you're in that situation. So it's only part of the picture, I guess, because these are just folks who have chosen to apply for unemployment benefits initially.

Right, and if you were separated with some sort of severance package, there could be a delay there as well, you know, before you make that initial claim. So it could be a lagging metric in that regard as well.

Sure, good point.

All right, anything else we need to cover here, gentlemen?

want to touch one more on the unemployment is that for there's a lot of youth unemployment people right out of college and in order to apply for unemployment you have to have worked so if you've never had a job you've never paid it social security paid in the system you can't apply so any number of students who have graduated in the past year that you know never had an internship or you know worked at Chipotle over the summer they don't count so that's probably a

Yes.

a part of the number that we don't see that exists.

Excellent point. Excellent. Yeah, they would rely on a survey to find those folks who just got out of school and are looking to have their first job but are unable to find it. And that we certainly see that in the headlines that that new high school or college grads are having a pretty difficult time finding finding work compared to the last few years.

Mm-hmm.

Yep, yeah, we talked about that on the webinar just last week and just to bring you to the podcast audience here. The numbers that the Federal Reserve is seeing for those with a bachelor's in the to 28 year old category, it's spiked to a level not seen since the kind of the recovery years of the global financial crisis, like levels we haven't seen since 2012, 2013. So that kind of gives you a picture of where we might be at. Obviously there's.

Yeah, those are rough years for those of you who were around back then. I certainly remember it, not just in the mortgage industry after the meltdown, but just across the economy, across the world really. was just a difficult time to change jobs, to find your first job, to obtain gainful employment. So hopefully we're just scraping the bottom there and we start to pick up a little bit here as seasonality kicks in going graduation season again, which is coming up here just in a few months.

also how I got started in the mortgage market as well. That was one of the few bright spots

Yeah.

computer science degrees who are choosing to go into construction or, you know, other types of industries, you know, that may be different from what they were expecting just given the state of the overall market. ⁓

More to come on this. All right. Let's move over to the year in review.

All right. Here we are. We're back talking through just what, what had an impact on 2025, right? We'll talk a little bit about what had pressure on rates. what just caused just narratives in our industry. We'll talk about just what affected our economy. There's just so much we could say. So we'll try to stick to things that really influenced the industry, influence rates. mean, if anything, I'd say in our industry, we've made incremental progress.

seen very interesting political climate developed this year. Rates have been sticky. So not a ton to talk about there in terms of impacts, lots of debt, you know, coming online and probably threatening to come online in the future.

let's get right into you know, as far as upward pressure on rates, as I just mentioned, you know, massive debt supply, we've got our own national debt, which is rising higher than it's ever been every single.

minute of every day, you've got defense spending rising. Some of that is, is due to our, some of our pressure on, on NATO and just generally speaking in, know, a difficult, challenging, ⁓ global climate right now in terms of conflict and, probably that gets worse before it gets better. And then meanwhile, not just stateside, but across the world, just tech investment, right? Right now you could think of that as AI, you could think of that as semiconductors.

But there's also energy that comes behind that where we need to, you don't need to build that energy for these data centers, factories that build the chips and so on. And that's largely funded by debt. don't read about that as much. You hear about Apple investing in whatever. In a lot of cases, they have to issue bonds to get that done. What else had upward pressure on rates this year, do you guys think?

taking the tech angle, I feel like a lot of that capex spending by the Magnificent definitely major upward pressure on rates, upward pressure on real rates, which I posted about, I think last week, main driver of sort of our regime in the 2020 interest rate regime versus the 2010s is what those real interest rates are, which are

know, one to two points higher in a lot of cases. And that's really just a function of the economy competing for capital. There's a lot of ⁓ investment that's happening, whether that's public investment and government spending, or private investments in the promise of technology, which is driving all of the major returns in the stock market for equities. And that's ultimately causing the time value of money to

Mm-hmm.

to go up, even more so than inflation, at least this year, relatively tech story is definitely a major one in terms of interest rates.

Sure. Probably inflation. Like inflation hasn't been out of control, but it's one of the few things that's keeping the Fed from cutting rates, right? Keeping policy restrictive and just generally, if folks think that dollars are going to be worth less in the future, you're going to be able to buy less stuff. That just kind of keeps rates higher. There's again, there's competing priorities there and competing dollars to invest.

Mm-hmm.

Throw out another one too, which is just overall volatility, we definitely saw in the first half of the year, probably a bit more so than the second half, up the term premium on bonds. And also just the fluctuations with the US dollar, big sell off in the first half of the year, come back a little bit in the second half, but still very much down for the year.

Also having an impact on rates, longer term securities in general, I just think that the more uncertainty or volatility that you longer duration assets, say MBS, mortgage backed securities, the 10 year treasury going to feel it more. You're going to get more upward pressure on rates than you are in the shorter end of the you're in a volatile environment like Thankfully, we've seen some of that volatility decrease.

think the underlying item that both of you are kind of touching around here was Liberation Day, right? That was one of the biggest events of shockingly this year. It flies so fast, doesn't it? But the market really crushed itself the day after and then very quickly they rolled some of them back and it all caused a ton of volatility. Conversation over in Europe and Asia about the nuclear option of selling US Treasury bonds as a punishment, that causes a lot of fear, a lot of uncertainty.

Mm-hmm.

what was going to happen. know, the entire economic theory would be that inflation should have really crushed us over the course of this year. But with enough pressure in the job market, maybe helping to slow that down, we've really just seen a turbulent ocean that we've been sailing on.

So that really feels like one of the most significant events. It kind of hits on everything. It was an administrative move. It impacted the world. It ends up pushing inflation up, makes it harder for the Fed to cut rates, causes a lot of volatility. It's really, it's the full sweep. And we have a couple items like that this year that you could point to. The government shutdown, Doge cuts causing uncertainty just with the job market and the government. There's a lot of items that we could point to as kind of the biggest event of the year.

Mm-hmm.

Yeah, big, beautiful bill is in there somewhere, right? Like this new administration, so much different, like unique stuff that was piled onto the market. And you could say that it caused volatility, meaning it pushed rates up and down at different times of the year, depending on what the mood was or what the consensus was on where we were going. As you said, like when the tariffs first came out in April, was it was a bloodbath there for a minute, but then we came back stronger in equities.

Yeah.

Rates are lower now than they've been all year. It's just kind of interesting how all these things have interplayed with each other and we've yet to see the full effect of it. I we're still right in the middle of the tariff discussion, right? There's nothing set in stone there.

massive impacts on the market this year, a tertiary one that I think is perhaps underappreciated on the labor front is the immigration policies of the Trump administration and how I think it's very much so, whether forced or voluntary, muddied the picture on where exactly the labor market is right now, just because we're working with far fewer people than we began the year which is keeping, I think, the unemployment rate a bit suppressed than it otherwise would be.

all things remain the same on regards to immigration policy.

For sure. Again, a very unique situation there, right? Like we've not ever seen this kind of negative immigration in our country. Meanwhile, you have all these other extraneous factors going on that are going to ultimately affect the labor market. And then I guess to tie a bow on the administration's effect on interest rates this year was just the up and downs with the Fed, right? Like for a while there, it was getting tense. Like there was like an immediate threat to the...

American treasuries because of what's going on over there. And, you know, that was putting that upward pressure on rates. Meanwhile, the White House is calling for two points and cuts. Just a wild ride.

Yeah, I remember like some nights April, post liberation day, but still in that area where we didn't really know exactly how things were going to shake out once the 10 year started in Asia or the 30 year. watching that just go up and of chatter online about

what was going to happen there, liquidity yeah, that was a wild ride for time of the year. If you were an astute listener of the Optimal Insights podcast, you might remember us hearing and talking through that really the only thing that made sense at the time, the only framework to make sense of it was as a negotiating tactic because given the high level of tariffs that were implemented,

likely would have caused a recession, which would not bring back manufacturing jobs. It would not enough income to offset the trigger recessionary spending that other two options, our narratives are out there, really didn't make a lot of sense. ultimately we saw the only one that sort of made sense really the dominating narrative throughout the rest of the year,

that was certainly a crazy time, watching equities go down 10 plus percent, I think 15 plus percent at some point. I've sort of got this theory or opinion that I have, which is the president really doesn't influence the economy that much for the most part. If the economy is doing well, the president will take the credit. If the economy is doing bad, the president will get the blame.

Mm-hmm.

That's all just sort of politics out there. in my opinion, I just feel like the US economy is just this much bigger thing with so dynamic and it's really hard for one person or even one political party to influence it too much. think that the trends just end up being bigger. But this is one of those years where it really was the federal government that

had a massive impact just all throughout the US economy and in so many different ways. Everything that we talked about from tariffs to the labor force, immigration policy, the relationship with the Federal Reserve, I feel like that's really one of the defining characteristics of this year was the actual involvement of the federal government in the US economy and the way that it sort of tipped the scales in different directions.

Mm-mm.

you know, ultimately led us to where we are here at the end of December.

Yeah, it's really good point, Kevin. And it's not lost on the administration, I'm sure. mean, you know, it started immediately with a very, very business focused president, obviously. mean, that Donald Trump is first and foremost a businessman, right? So yeah, I think it was, they went to work immediately and most of what they've been working on has been economic related, right? Whether it has to do with immigration, which indirectly affects the economy, the tariffs, taxes, big, beautiful bill, just, yeah.

run down the list. then this is where I struggled with this one. was, and we've struggled with it all year in our industry. What could and did put downward pressure on rates? And I had difficulty stringing together a list because there was not many items, right? Global tensions for sure. I mean, there's multiple wars going on. We had our scuffle with Iran, which was, we got really close to getting into our own war there.

We've had obviously the war in Ukraine, the war in Gaza. are typically going to mean lower rates over time. if we haven't had, it hasn't been enough to push rates, mortgage rates below 6 % this year. what, was there anything else this year that stuck out as a catalyst to push rates lower?

Job revisions, right? ⁓ Come October, we saw that nasty job revision looking back three months and saying, okay, this has had an impact. We're really slowing. It's not as stable as we thought it was. definitely, you know, talk about convincing the Fed whether or not to do rate cuts. If that report had not come out, do think we would have three this year? I'm not sure we would have two, right? We probably would have sat where we are.

There's one. Yep.

Right.

I think that's the most influential item as to cutting rates this year. Now what else is pushing it down? It is a harder question to find.

Yeah.

Yeah, I would agree with you, James, I think, you know, the softening of the labor market, definitely probably the big story there. And a lot of that came through with with the revisions. I think like, really, the other thing is just the easing of the the upward pressure, you know, forces as those sort of started to become not, you know, first order narratives, but, you know, backburner narratives, however you want to describe them.

that allowed some more space for the labor market to dominate the conversation and ultimately have that negative impact on rates, downward pressure on rates.

So a more passive effect to allow, like you said, allow the space for rates to drift lower, like inflation, inflation much lower of a concern in 25 than it was in 24. So taking the focus off of that, you can allow the job stuff to be a bigger deal. You can allow some of the global conflicts to be a bigger deal. That's a good point as well.

them.

Mm-hmm.

Overriding all this though, think something to in mind is just how sticky those higher rates have been. The jobs revision that James talked about was a temporary reprieve. We saw a locking bonanza there for a few weeks, but if you go back and look at September 17th, the 10 year, and you look at it today, we're higher after 75 base points of cutting. ⁓

Mm-hmm.

higher as well, not as much as the 10 year is from a pure base point value, thanks to, as Kevin mentioned, those narrowing mortgage spreads. yeah, ⁓ just the temporary nature of these, what we're highlighting is downward pressures. So it leaves much to be desired.

Yeah, the upward pressure just is still there and it's consistent and you get a reprieve here and there and it's been better for mortgage rates. think, like you said earlier, the spread has shrunk where treasuries are certainly flat or higher. Mortgage rates have been allowed to drift a little bit lower, which I think is good for us to get about 200 basis points, right? Between 10 year, the OBMMI, which is back to a healthier range compared to two and a half to three that we've seen since the pandemic, which just keeps

know, mortgage rates artificially higher when all else are being equal.

else just had an effect or kind of tangentially even related to our industry. mean, there was some other stuff that evolved the administration that really hasn't. There hasn't been a ton of news out about it. I feel like like the CFPB, whatever happened with that, right? They were essentially, essentially neutralized at some point, but I haven't heard much about the CFPB, maybe TBD in 26.

Yeah.

Yeah, I think that'd be something that's slow, little things you'll notice here and there. It's not gonna be the every day you wake up, your day is materially worse, but it'll be a slow grind, know, on the little things as they slip through.

thing I was going to mention was that there's, I know a number of states have gotten together kind of fill the void of the CFPB. And I think just brought over one of the ⁓ former head of the CFPB to help with their regulatory however you want to characterize that.

Yeah. I mean, that's, that's been a theme with, if you remember even to the first Trump administration, right? It's certainly a Republican thing to be less federal government, put more in the hands of the States. But, president Trump, especially for my recollection, first term, a big theme was putting more power in the hands of the States and the CFPB, ⁓ potentially abolishing the CFPB and moving it towards the States makes a lot of sense in that, in that narrative.

And the CFPB's role as a regulator, right, is to make sure people are following the rules or just what we've put in place to protect consumers. And so as the CFPB gets shut down, branches of it are closing, layoffs were happening within it, Doge was stripping people out. You would hope the first thing that, you know, a CEO of some company doesn't do is, I'm allowed to do this again, right? You would think, hey, we've learned some lessons in the past.

Mm-hmm.

The reason that these regulations were created were because of serious bruises that the market took. Even if that regulation goes away, you might be to get away with it. You might not want to dip your toe into that water knowing what could happen further down the line.

Right, perhaps we're self-regulating is the thought or the hope.

Yeah.

or it takes you a while to ⁓ make the same mistakes.

Sure, give it time and it'll happen again.

Yeah, or even just

the fact that the CFPB, they're still there, like the framework's still there. All you need is another administration who's going to change the approach. there's still look back period there in terms of what the next head of the CFPB might be looking at. it's definitely not just a free for all now that the CFPB has taken its foot up.

foot off the gas with our industry for sure.

Granted. All right. A couple more things I want to be sure we cover just housing market, right? Starting to see a slowdown there finally in price appreciation. Actually, I'd argue we're seeing depreciation if you look at the averages or even look at certain pretty important MSAs that skyrocketed during the COVID years, seeing decreases, listings are increasing, just seeing probably what amounts to a more healthy housing market.

07, 08, but just something that resembles a more healthy, pull back to the point where hopefully it unlocks some existing home supply process.

Yeah, I think that's, I've definitely seen some forecasts that are, you know, that are have a negative in front of the number nationally. So I certainly don't think that's out of the question. And I think the regional factors have been probably the biggest surprise for me since 2022, but talking about the story of this year, 2025 as well. Northeast is still the really one of the only markets where you're still continuing to see that.

Booming.

appreciation. Now it's a little bit outside of the bigger Metro's. got to get to the second, you know, second order, third order Metro's where you're still seeing those, you know, barely sizable appreciations, upstate New York, Hampshire, Rhode Island, the upper Midwest and Midwest in general, you know, has been a bit more flat. then basically everywhere, South and West has been, I think, you mostly negative on the year, not significantly. So, but you know, in the Southeast.

in Texas, ⁓ Colorado.

Yeah, Austin got hammered

pretty good. It's a lot of those strong positives that you saw during COVID have switched to negative, right? It's just a little more volatile, it feels like.

Yep.

Yep. Yeah, for sure. And just areas where there's more housing supply as well, where it can start to see the effects of that demand decrease much more so than, the Northeast, which is all built up. There's no land here. There's no development. You know, it's all, it is what it is at this point. but yeah, definitely ⁓ will be interesting to watch there. we'll...

Okay.

or told.

So now we got you on record, Jim. So we'll have to recap at end of 2026 and see how this plays out.

Calling it.

think it has to happen. All right. Last but not least, we got to touch on some of the creativity or attempted creativity to come out of FHFA. It's not too far in the rear view mirror at this point. Barry Habib was brought in to meet with the FHFA to talk ideas. We thought maybe we were going to get a reprieve from LLPAs, maybe even a G-fee move. That hasn't happened yet. The 50-year mortgage just came out to just some disappointment, I think, or just

almost anger felt like. But again, I appreciate the creativity. I think we have to get creative. There's this wishing for 3 % rates or wishing for affordability to magically improve just is not productive. I do think I applaud Pulte and the White House and the FHA for trying to figure something out. But again, I struggle with how that could work without the GSEs.

making less money and they've been a cash cow since conservatorship. So you can't have both. So I don't know what that looks like next year. And we'll talk about some possible ideas, but anyway, that struck me too as something material that happened this year that almost made it.

definitely appreciate the same, know, anyone who's got ideas, you know, to throw out there to try and help things, you know, great, that's wonderful. What's been thrown out this year so far, I think really underscores that this is not a problem with a silver bullet to solve. I think that's the biggest takeaway. There's no 50 year solution. There's no assumable solution. This is

Mm-hmm.

This is a big structural issue, you said, Jim. GSEs play a huge role in that. And it isn't something that's going to be solved with a headline, for sure. I think that's the biggest takeaway of watching some of that come out of FHFA and other places this year for me.

Yeah, probably need to spend money. And that's not a popular, ever a popular idea, especially when we're in record deficits.

Jim, the GSEs, they could take the hit and earn less, lower the G-fee, try and help make a 50-year rate more sensible. But to do that, they'd have to be some sort of quasi-government institute. And if they were to go ⁓ release from conservatorship and be competing in the market, then they really would not be able to do that. it's just one of those... Giving them up is always a...

Hmm?

a hard pitch.

saying goodbye is hard to do. Yes. Yeah, you can't have both. To your point, they're conflicting concepts, privatization versus actually lowering rates. It's just there's not that silver bullet.

All right, let's end it here by going around the room. Let's just rattle off your, what you think is the most impactful event this year. Maybe it affected interest rates, maybe just affected the economy in our country. What was the biggest for you, Alex?

I'm gonna go on long-term rates. think the underscored long-term inflation dynamics at play on the rates market. think when you're looking at the 10 plus year lending market, I think a lot of inflation is being priced in there right now. to meaningfully bring those down, I think we need to.

tamp down on the fears of inflation. We've allowed it to drift to 3 % or so a year. And when you compound that over 10 years, it is a meaningful difference from 2%. So that's something I'm keeping an eye on.

Mm-hmm.

Good one. James.

I think I would say the Doge cuts were probably the biggest item of the year in my eyes. just cause you know, the government does a ton of things and just because you don't know what this department was doing or what that money was going towards. You don't notice now that it's stopped today. It doesn't mean 20 years from now, you won't know exactly what they were so it's kind of a long-term item for me, but tens of thousands of layoffs, know, billions cut out of the government. good for savings, but what is it

Right. And James had a front row seat to a lot of that too. If y'all aren't aware, James lives in the DC area. So he's, he's seen it with his own eyes, right? How it affects people and

I joke to this, but at the beginning of 25, the James Cale friends and family unemployment rate was pretty close to zero. It's pretty close to like 20%. I know it's significant amount of people without jobs now.

Yeah.

Yep. Hate to hear that.

so I'm going to, I'm going to go a little bit deeper and, uh, I'm going to say the rollout of GPT a major moment. And the reason, was because there was a lot of hype leading up to it. What can it do? How's it going to be? Is it going to be super intelligence? And it wasn't.

around that is I think it showed that the models and the companies that own these models don't have a moat. Meaning, ⁓ other players like Google, big came out with Gemini 3 in the second half of the year. They're now getting into the game and the monetization strategies for these companies I think are becoming increasingly important and a lot of them have substantial monetization struggles.

Mm-hmm.

Yeah, I think, I feel like you said bubble without saying bubble, but yeah, I think AI was an enormous story this year. We touched on it a little bit with some of the spending discussion, but didn't really get into it. We could talk forever, right? About how AI has affected our lives. It affects potentially the unemployment rate, at least as far as excuses for why people are getting laid off or not getting hired out of college. But time's going to tell, like you said, like AI still is in that infancy where it's literally as smart as a child.

Right. And the promise is that it exponentially grows in intelligence from here, but we haven't seen that yet. So how has the money come back versus, you know, what are we going to see in terms of winners and losers? Cause that's all these AI companies that are investing billions are not all going to win. Some of them are going to get, they don't have them out. They're going to get, they're someone's going to their lunch for them. And it's going to be a few that are left standing like we had with telecom, like we had with.com. like that's happened throughout.

Yep.

history back to the industrial revolution. So yeah, that's going to play out over many, many years. I think that's a really good one. man, I feel like the good ones have been taken. I'll take tariffs just because it's new. It's interesting. It's, didn't pan out the way anybody said it would. So to me, a, you know, kind of a confounding topic like that is interesting because it just rewrites logic, rewrites kind of economic teaching, which I always find amusing when

Mm-hmm.

everybody was wrong pretty much so far. Again, time's going to tell we're not done. We've not seen 20 % inflation. We've not seen our adversaries dump our treasuries on the market. We've not seen some of the horrible effects that we might have. But then again, we haven't seen huge revenues and the Supreme Court is still out on whether or not tariffs are even legal, which is special.

That's good one.

All right.

We've hit all the corners here.

So.

on ⁓ any sort of conviction in one direction or the other. But that makes me think that next year might be the year we get surprised and something happens, whether it's globally or in the financial markets that tends to then cause those unexpected moves in interest rates, which could be good or bad for our industry. All right. Thank you, gentlemen. Wonderful conversation. Talk again soon.

Thanks, Jim.

Sounds good. Thanks, guys.

All right. Before we wrap up this episode and wrap up another amazing year, we're excited to announce a new way you can join our conversation. We've launched the Optimal Insights listener inbox where you can suggest topics you'd like to hear on the show. So feel free to tell us what you enjoy about the show, what you'd like to hear more of, or even new concepts you'd like to suggest. We obviously can't get to all of them, but we will read all of the ideas and bring some of the best ones to our future episodes. So send us an email at podcast at optimalblue.com.

a pretty simple email address. look forward to hearing from you.

Thank you, James, Kevin, Alex. 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.