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A number of announcements related to M&A in recent days may signal that buyers are more confident about securing regulatory approval for transactions.Adobe Stock, Daniel Wolfe The melding of increased regulatory challenges and fallout from high interest rates has cast a pall over bank merger-and-acquisition activity in 2023 and at the start of this year. But deal talks are on the rise, driven by a pursuit of scale and diversification. Key deal announcements in recent days may signal that fresh momentum could mount.Most notably, UMB Financial in Kansas City, Missouri, said Monday it struck a deal to buy Heartland Financial USA in Denver in an all-stock transaction valued at $2 billion. The acquisition, slated to close in the first quarter of 2025, marks the largest bank deal announced since 2021. The $45.3 billion-asset would-be acquirer said it was confident in its ability to secure regulatory approvals to absorb the $19.4 billion-asset Heartland — the major hurdle standing in the way of larger deals over the past couple of years."We have been keeping our prudential regulators and other agencies engaged throughout our due diligence business, and because of the feedback we have received, we're excited to move forward," UMB Chairman and CEO J. Mariner Kemper told analysts during a call on Monday.In the wake of elevated regulatory scrutiny ordered by President Biden in 2021, several acquisitions were delayed and a few were nixed entirely. This discouraged some deal discussion, with acquisitive banks growing reluctant to commit to a deal that might get mired in a protracted, expensive regulatory process.  "Regulatory scrutiny is an ever-present risk to M&A transactions in today's climate," D.A Davidson analyst Jeff Rulis said after UMB announced its bid for Heartland, which does business as HTLF. But UMB's confidence and strategic rationale make a case for M&A that regulators appears to recognize.Rulis noted UMB inked the deal in pursuit of business line and geographic diversity, aiming to expand in major markets throughout the Midwest, South and West. "Scale and metro market density were stated strategic drivers of the combination" as well as a "diversified business model," Rulis said.What's more, the $21.2 billion-asset Eastern Bankshares in Boston said it now expects to get regulatory approvals for its delayed acquisition of in-state peer Cambridge Bancorp during the second quarter and close the transaction shortly thereafter. Eastern valued the proposed acquisition of the $5.4 billion-asset Cambridge at $528 million when it was announced last September. The all-stock deal was initially scheduled to close in the first quarter, but it was delayed because of drawn-out regulatory reviews."We expect those approvals later this quarter, and we expect to close the merger in early July," Eastern Chief Financial Officer James Fitzgerald said during the company's first-quarter earnings call on Friday. Regulators were "very clear that they want to support us, I think, and they know our timelines for this and have communicated that they believe they will put us in a position to meet them."Also on Monday, the $18 billion-asset Hope Bancorp in Los Angeles said it would buy the $2.2 billion-asset Territorial Bancorp in Hawaii for $78.6 million. It followed news last Friday that the $27.6 billion-asset Fulton Financial's bank in Lancaster, Pennsylvania, would acquire most of the $6 billion of assets from the failed Republic First Bank in Philadelphia.While the latter deal involved a failure, it was nevertheless a bid for diversification and greater size, said John Mackerey, an analyst at Morningstar DBRS. "In recent years, Fulton has been expanding its presence in larger metropolitan areas, including Philadelphia, and this transaction accelerates that strategy," he said. Of note, a pair of Illinois community banks also agreed to combine on Monday. Monmouth-based Western Illinois Bancshares and Princeville-based Main Street Bancorp agreed to merge in an all-stock transaction expected to close late this year. The merged bank would have about $800 million of assets. Financial terms were not disclosed.Earlier this month, Wintrust Financial in Rosemont, Illinois, inked a $510.3 million all-stock deal to buy Macatawa Bank Corp. in Holland, Michigan. It marked the second-largest deal of this year. The $2.7 billion-asset seller would join the $56 billion-asset Wintrust's lineup of 15 community banks in the Midwest should the deal close as planned in the second half of this year.While a few deals do not make a trend, the spate of activity to close out April was welcomed by bankers at a Piper Sandler conference this week, said Stephen Scouten, an analyst at the firm. The announcements were "mildly encouraging to most in attendance," he said.Scouten said M&A activity still has much ground to regain this year, "but conversations remain prevalent and deal volume could pick up from 2023 lows."In addition to the regulatory headwinds, a surge in interest rates over the past two years spurred worry about an economic downturn and curbed some buyers' appetites. Recessions often hinder borrowers' ability to repay loans, causing higher credit losses for banks. This includes possible sellers; as a result, many would-be buyers tapped the brakes on M&A plans.U.S. banks announced 100 acquisitions in 2023 with a total deal value of $4.2 billion, according to updated S&P Global Market Intelligence data. Both measures were markedly lower than the previous year, when banks announced 157 deals with a total deal value of $9 billion. And 2022 was a relatively slow year compared to 2021, when 202 deals valued at $76.7 billion were announced.During the first quarter, 26 banks announced plans to sell. Those deals carried an aggregate deal value of $1.1 billion, according to S&P Global. That represented a substantial advance from the year-earlier quarter, when there were 20 bank deals worth a total of $433 million.

Representative French Hill, a Republican from Arkansas, sits on the House Financial Services Committee.Al Drago/Bloomberg WASHINGTON — Rep. French Hill, R-Ark., the vice chairman of the House Financial Services Committee, criticized a range of proposals by Biden administration regulators, notably those related to technology, including bank-fintech partnerships and digital assets, in a speech Tuesday.Hill, who also serves as the chairman of the House Financial Services subcommittee on digital assets and is in the running to take the top Republican spot on the full committee next Congress, told a room full of community bankers that his and other House Republicans' focus for the remainder of the Biden administration is pushing back on regulators' policies, as well as introducing some legislation to "lead us in the right direction." He spoke at a conference organized by the Independent Community Bankers of America.In particular, Hill criticized a move by the Federal Reserve in August that outlined how the central bank would oversee "novel activities," including technology-driven partnerships with nonbanks, and activities that include cryptocurrencies and blockchain technology.Hill and many other Republicans interpret steps being taken by banking regulators to address fintech and crypto policy as effectively shutting out banks from those businesses. Hill argued that the Fed's action in August "basically says that if you want to partner with a fintech company in any aspect of your business, somebody has to get preapproval for that.'"I told Vice Chairman [Michael] Barr, that's not the way we work in banking," he added.Hill said that regulators should instead look at these partnerships and activities at banks individually through the examination process. "We have records, we have risk management policies and compliance departments," he said. "We document all that, then we'll go over it with an exam. I thought that was a serious overreach." Hill said that one of his goals in the next year is to show regulators and Congress that fintech "can benefit banks." He's also interested in the use of artificial intelligence in the financial sector."We're bringing in the regulators, asking them how they're using AI in their own practice and their own services to you, and how they're looking at AI from a supervisory perspective," he said. Hill also referenced an off-the-record session at the ICBA conference the previous day with Consumer Financial Protection Bureau Director Rohit Chopra. Hill, like other congressional Republicans, has repeatedly criticized Chopra's rulemakings and enforcement actions."I don't think any CFPB director has ever made a small business loan," Hill said. "You got to hear from one of the slickest guys in town yesterday."  Hill promised to continue pushing back on the CFPB's small-business lending data collection rule, which has faced litigation from the banking industry as well as an ultimately unsuccessful Congressional Review Act challenge. 

The world of finance always fascinated me growing up in the early 2000s. With two parents who worked on Wall Street — a father attached at the hip to his BlackBerry PDA and a mother who gave up her day job as a bond broker to raise two boys — I bombarded them each day with questions about the ins and outs of stocks, bonds and what it was like to launch their careers during the economic boom of the 1980s. My hunger for the basics of how deals were structured, what exchanges did and other fundamental concepts continued through college and into adulthood, pushing me in the direction of business journalism. "Why not work in finance outright and just do what your parents did?" asked many concerned friends and family members wondering if I made the wrong choice.  For one simple reason: It's learning about the form and function of the deals that I always loved, not being the architect. A mix of a desire to continue my education and general intrigue led me to Michael Lewis' "Liar's Poker." It's the book that launched Lewis' writing career and is celebrating its 35th anniversary this year. "Liar's Poker" is an oft-recommended dive into the highs and lows of Salomon Brothers, one of the most profitable investment banks of the time. Lewis' firsthand account of his time as a bond salesman for Salomon from 1985 until he left in 1988 holds your hand through a period of relative inexperience as a trainee to entry-level salesman to multimillion-dollar dealmaker. Despite the book's age, "Liar's Poker" retains its status as a must-read for anyone interested in the inner workings of Wall Street. The lessons it teaches about the true costs of success and the methods behind building an entity as dominating as Salomon once was remain true today. Many know the fate of Salomon — it was plagued by a scheme related to buying Treasury bonds and eventually sold to Travelers Group. The book ends before this period is covered but it still serves as a stark reminder that even seemingly indestructible companies can, in fact, be toppled, a lesson the industry can't afford to forget. (Note the banking crisis last year.) Outside of a master's degree in economics from the London School of Economics, Lewis' major in art history combined with his experiences of bartending and skydiving left him at a disadvantage during a mass surge of students studying finance. But like many who landed jobs in the field, connections proved to be the high hand over pure experience. A chance encounter with the wife of a senior Salomon Brothers managing director turned into breakfast with the firm's former head of recruiting Leo Corbett and, eventually, a seat in the training class of 1985. "Oddly enough, I didn't really imagine I was going to work, more as if I was going to collect lottery winnings," Lewis writes.But with the paycheck came an ingratiation period into the culture that proliferated at Salomon and other firms of the era. After three months had passed, trainees spent the remainder of the program patrolling the trading floor to see how the company functioned and commence with selecting their "jungle guide," or the veteran who would take them under their wing. Thus began the "Great Divide" between those throwing themselves at the mercy of managing directors in the hopes of a desirable landing, and those playing hard to get. Doing so garnered no relief, however. When it came time for job placement, managing directors became talent scouts, trading trainees based on appearance, individual merits and — once again — connections. The first few chapters that recount Lewis' training, reflective of the firm's desire to brainwash its inductees into willing converts, are interesting enough, but it's the anecdotes of miniature finance lessons nestled between the tales of jilted clients and warring executives that really give the book its gravitas. For someone whose day-to-day life doesn't directly involve bonds or mortgages (if yours does, see our sister publications), the walk through the rise and fall of the mortgage bond market would normally lead me to aimlessly thumb through the pages until I returned to Lewis' perspective. But given that his lens is through bond options and futures sales, this lookback into Salomon's mortgage business involves the man responsible for its growth — Lewis Ranieri. Before earning his title as the "father of mortgage-backed securities," and his inadvertent hand in the 2008 financial crisis, Ranieri worked his way through Salomon's mailroom into a position trading public utility bonds. It was then, in 1978, that he was nominated by industry pioneer Robert Dall to become the newly created department's prime trader. Over the next several chapters, Lewis uses the "loudmouthed and brash" Ranieri to provide an overview of the birth of the mortgage-backed securities industry and Salomon's role in its creation and subsequent domination for some time. In addition to the historical significance of Ranieri's tenure, he's also representative of the hunger that allowed mostly men to succeed on Wall Street during that time. When the book's main narrative begins, in 1985, the barrier that was erected between the back and front office required traders to have a resume, graduate from college and most importantly "look like an investment banker," writes Lewis. Equally interesting, and telling of the time, is the disparity in which jobs women were allowed to hold. The popularity of bonds in the '80s pushed many trainees toward the trading desks, but Salomon's "ordering of the sexes" dictated that within the firm, "men traded, [and] women sold." "The immediate consequence of the prohibition of women in trading was clear to all: It kept women farther from power," Lewis writes. The banking industry has progressed since then. But there's still measurable work to be done given the dearth of women in the C-suite and other traditionally male-dominated jobs. I parted ways with the book a bit wearier, albeit smarter, and was left thinking about all the stories my parents told me about their experiences. After what they've gone through to get me where I am in life, the least I can do is give them a temporary reprieve from my bombardment of questions.

Two Harbors Investment Corp., riding a first quarter profit, is close to locking mortgage loans through a direct-to-consumer channel. The effort, an attempt to hedge against faster-than-expected prepayment speeds when there's a refinance environment, will begin operating in the second quarter, executives said Tuesday in an earnings conference call. "Though [a refi environment] may seem distant, we intend to offer ancillary products, including second lien loans to our customers in the meantime," said William Greenberg, president and CEO of the firm. The announcement follows a first-quarter result of $192.4 million in net income over the prior quarter's $444.7 million net loss. Two Harbors' comprehensive income of $89.4 million was also a quarterly improvement from the prior period's $38.9 million. Company leaders cited mortgage servicing rights values increasing on higher mortgage rates and spreads tightening. A decline in residential mortgage-backed securities values meanwhile was offset, the firm said, by gains in swaps and futures. Two Harbors' $14.7 billion portfolio included $3.1 billion in MSR holdings and $8.2 billion in RMBS at the end of the quarter. The company added a new subservicing client in the first quarter, which will onboard around 17,000 loans to its newly acquired RoundPoint platform. That acquisition is nearly complete, with approximately 52,000 loans set to transfer in June in a final "clean up," Greenberg said.New participants and low supply are driving a brisk pace of activity in MSR markets, executives said. The $160 billion in unpaid principal balance up for bid in the first quarter was lower than years past because of slow originations and much low-coupon servicing already trading hands, said Nicholas Letica, vice president and chief investment officer. "This lower supply combined with a growing investor base should keep MSR values well supported," he said. Although prepayments are expected to rise, Two Harbors said it is insulated given that over 80% of its balances have loans 250 basis points below current mortgage rates. The firm's MSRs have a weighted average coupon of 3.47%, nearly unchanged from the end of 2023.Two Harbors' share price opened the day 9 cents higher after its earnings release Monday evening, when it closed at $12.61. The stock hovered around that price at mid-morning Tuesday.

Fannie Mae struggled with single-family loan purchase volume in the seasonally weak first quarter, when it fell to depths not seen since the third quarter of 2000, but other strengths netted it a small gain.The influential government-related mortgage investor purchased $62 billion single-family loans during the first three months of the year, down from $70 billion the previous quarter and $68 billion a year earlier, when the number also was near a two-decade low."Continued high interest rates, housing affordability constraints, and limited supply resulted in low refinance volume and put downward pressure on the volume of purchase loans we acquired," said Chryssa Halley, chief financial officer, in an earnings call.However, other offsetting strengths increased earnings slightly to $4.3 billion during the first quarter, compared with $3.9 billion the previous fiscal period and $3.8 billion a year ago; and executives said Fannie is taking steps to sustainably finance more borrowers."Our first quarter revenues remain strong, with $7 billion of net interest income thanks to healthy guarantee fees," Halley said. While g-fees were down from $7.7 billion the previous quarter they were up from $6.8 billion a year earlier.Fannie also saw a benefit for credit losses this quarter of $180 million as opposed to a provision of $116 million the prior quarter."This was driven by a release in reserves due to increases in forecasted single-family home prices partially offset by an increase in reserves for multifamily," said Halley. "The multifamily increase is due primarily to declining actual near-term projected property values, as well as increases in actual and projected interest rates compared to the company's prior forecast."Multifamily loan purchases also have been slower and fell to the lowest they've been since the fourth quarter of 2015 at $10.2 billion, down slightly from around $11.2 billion the previous fiscal period and $10.2 billion a year ago.The circumstance suggests the future strength of Fannie's earnings rests largely on continued strength in single-family home prices, the economy and consumer sentiment.Indicators show consumer homebuying interest is persisting with some adjustment to current interest rates even though affordability hurdles are a challenge, CEO Priscilla Almodovar said during the earnings call."Despite these pressures, consumers seem to be adjusting their expectations on mortgage rates and the home price environment," she said.Also, Fannie has been adding measures to address economic hurdles to buying, Almodovar said.One step Fannie took Monday to extend more loans to the market was to initiate an effort to draw up a standard definition for a "first-generation homebuyer" in line with its latest Equitable Housing Plan, which is aimed at closing the racial gap in the residential market."We hope that the standard definition will allow the industry to understand and explore new ways of addressing this disparity," she said.Another has been a temporary change Fannie made to its Homeready low-downpayment program, which allows borrowers in areas making no more than the 50% of the median income to put $2,500 toward closing costs. (Its competitor, Freddie Mac, has a similar program.)"We're also creatively using our role in the capital markets to support our mission," Almodovar added. "This past quarter, we launched our enhanced single-family mission index disclosures, which helped interested mortgage-backed security investors allocate their capital in support of affordable housing."During the quarter, Fannie was the second largest single-family issuer of MBS with a 27% market share, compared to 38% for government guarantor Ginnie Mae, 26% for competitor Freddie Mac, and 9% for the private-label market.

U.S. home-price gains accelerated in February, extending a streak of increases that has pushed many would-be buyers to the sidelines.Prices nationally climbed 6.4% from a year earlier, an S&P CoreLogic Case-Shiller index shows. That's larger than the 6% annual gain in January. Purchasing a home is more expensive than ever in many areas of the country after run-ups in both prices and mortgage rates over the past couple of years. While new listings have ticked up recently, giving buyers more choices, inventory is still stuck well below historic levels, so competition remains intense. "Following last year's decline, U.S. home prices are at or near all-time highs," Brian Luke, head of commodities, real and digital assets at S&P Dow Jones Indices, said in a statement Tuesday. "For the third consecutive month, all cities reported increases in annual prices, with four currently at all-time highs: San Diego, Los Angeles, Washington, D.C., and New York."A measure of values in 20 cities was up 7.3% from a year earlier. San Diego continued to show the biggest annual gain, with prices soaring 11.4%. Chicago and Detroit followed, with increases of 8.9%.The Northeast region — including Boston, New York and Washington — ranks as the best-performing market over the past half-year, according to Luke. "As remote work benefited smaller (and sunnier) markets in the first part of the decade, return to office may be contributing to outperformance in larger metropolitan markets in the Northeast," he said.A study released this week by Bankrate showed buying a home is more expensive than renting in all of the country's 50 biggest metropolitan areas. The typical monthly mortgage payment on a median-priced home is about 37% more than the typical rent bill, according to Bankrate, which analyzed data from Redfin and Zillow. 

Whether you fear it or embrace it, artificial intelligence is changing the way the mortgage industry works. Despite some employee concerns that AI will replace jobs — especially after recent layoffs — executives are reassuring workers that they plan to embrace AI to complete menial tasks, creating more freedom and time to grow in other areas of the job.Read more: Freddie Mac said to test artificial intelligence underwriting softwareGenerative AI has already proven to be effective for some lenders who utilize it for daily tasks such as composing content and marketing material, helping with search-engine optimization or producing email responses. Still, that comes with caveats. "AI can be used to help research and write copy for marketing, but the resulting copy will still need to be verified and massaged," said one respondent to a survey conducted by National Mortgage News. Companies are even more cautious when it comes to unleashing artificial intelligence in any sort of customer-facing capacity, although a few are examining how a tool could be designed to be compliant while still providing value and protection to a client. But the current lack of clear regulations did not deter some lenders from testing the waters with AI chatbots in the past year. Others are still "working out requirements to assess where they can potentially be used."Read more: Figure launches AI-powered customer service chatbot AI could replace upwards of 300 million jobs in the next few years, according to Katherine Campbell, founder of consulting firm Leopard Job and former AnnieMac Home Mortgage executive. "Anything AI can do, typically a human being is miserable doing," she recently told National Mortgage News's Maria Volkova. "The more AI takes over the dirty work and we elevate ourselves to only what humans can do, the more satisfaction people will have in their lives." Mr. Cooper, as an example, has implemented AI into its work, but isn't replacing its experts with computers. The company uses the tech in fulfillment and due diligence roles, but takes a more cautious approach with AI in front-office functions, Sridhar Sharma, executive vice president and chief information officer at the company, told National Mortgage News' Andrew Martinez. Underwriters at Mr. Cooper use AI in a co-pilot mode, reviewing a computer's decision-making before moving forward. "I don't think the fear is that it will replace all our jobs," he said. "I think the way we look at it as an opportunity for our team members to handle twice the loans that we handle today." The executive said Mr. Cooper grew from a $500 billion mortgage servicing rights portfolio to nearly $1 trillion with a relatively similar headcount, and said technology will be a big part of growing it to $1.5 trillion while retaining staff. Read more: How a Tennessee credit union uses generative AI to foster fair lending Read more about how the industry is continuing to implement AI and how this technology can drive career growth for mortgage professionals.

The Department of Housing and Urban Development added a last-minute restriction to a previously proposed policy that aims to increase older homebuyers' ability to tap home equity.The Federal Housing Administration has cut lenders, third-party originators and any "premium pricing" from the newly expanded list of allowable interested-party contributions for Home Equity Conversion Mortgages used to buy homes.Some other aspects of the proposed rule, which allows homebuyers to use additional funding sources to qualify for a HECM, were left unchanged."FHA will move forward with its proposal that permits contributions by the property seller, real estate agent, builder, or developer to HECM for Purchase borrowers' closing costs," the administration said in an information bulletin. Consumer advocates welcomed the new restrictions as a means of ensuring lower financing costs for borrowers ages 62 and up who are eligible for the loans."HUD's policy announcement today will remove the risk that these older homeowners will be up-charged on their interest rate," said Sarah Mancini, co-director of advocacy at the National Consumer Law Center, in a press release.The National Reverse Mortgage Lenders Association responded to the new restrictions with a statement indicating that it would be looking into ways to resolve any related borrower concerns that led to the change.NRMLA was "disappointed that HUD has had to pull back on certain H4P features, which would have better aligned the product with the way things are done on the forward side of the mortgage business," President Steve Irwin said in an email."We also understand that we must ensure there is clarity for the consumer in how these product features work, and the consumer impacts of these features. NRMLA will devote itself to identifying any concerns regarding these features and work to resolve those concerns," he added.

Ocwen Financial Corp. has agreed to terms of a class action settlement involving allegations it overcharged borrowers for appraisals.In the original case filed in 2017, California homeowner David Weiner claimed Ocwen added undisclosed fees to broker-price opinions or hybrid valuations after it took over servicing for his loan earlier in the decade. In court filings, the plaintiff said Ocwen assessed BPO fees of $109 and $110, despite knowing the market rate was only $85. His attorneys also suggested Ocwen managed to avoid detection by having its affiliated business Altisource, which it spun off in 2009, assess, manage and bundle such charges in its system. In 2022, Ocwen's counsel successfully argued for decertification of the class, based off of the verdict in a separate case, TransUnion LLC v. Ramirez. The decision was reversed last year, helping lead to the settlement. While denying claims of the plaintiff, both parties agreed to a settlement to "avoid the costs, risk, and delays associated with continuing this complex and time-consuming litigation," according to Ocwen's fee settlement website. Members of the class include all U.S. mortgage holders whose loans were serviced by Ocwen and who paid BPOs or hybrid appraisal charges between Nov. 2010 and Sept. 2017. The court also certified a subclass of California homeowners falling under the same criteria. Upon settlement approval, Ocwen will reimburse $60 to class members for each BPO fee and $70 for each hybrid paid during the seven-year time frame. The settlement also mandates Ocwen reverse unpaid charges by the same amount for the California subclass, as well as modify future borrower disclosures in the state to identify any "reconciliation" service added by vendors to BPO and hybrid products.The court assigned the law firm of Baron & Budd to serve as settlement counsel. Administrators estimate payout at approximately $586,000 based on the number of claims counted. Counsel will also request attorneys fees of $8 million, plus $950,000 of reimbursable litigation costs, to be paid by Ocwen. A final hearing in the case is scheduled for Sept. 5. Claims for proceeds from the settlement are due by Sept. 29. Any class member opt-outs or objections have a deadline on July 12. Weiner's original lawsuit had also claimed Ocwen misallocated loan payments to an escrow account and charged him an annual $600 fee after he previously came to an agreement with the previous servicer to pay for taxes independently. The misallocation led to him defaulting on the loan, and ultimately, to the appraisal fees in question in the settlement. Weiner also claimed he was denied access to funds in the escrow account. The settlement comes as the cost and perceived lack of clarity behind servicing fees receive heightened attention. Last week, the Consumer Financial Protection Bureau issued a report regarding confusion behind some mortgage servicing charges, including fees on prohibited inspections and generic itemization.  The CFPB's focus coincides with the Biden administration's ongoing battle to eliminate so-called "junk fees" charged by banks and financial institutions. In its recent analysis of mortgage industy complaints during 2023, the bureau found that over 11,000 were related to difficulties encountered during the payment process, including confusion surrounding amounts owed.

Federal Reserve Chair Jerome Powell has repeatedly said that interest rate decisions from the Federal Open Market Committee, which meets Tuesday and Wednesday, are made from "meeting to meeting" rather than following a predetermined course. Even so, comments by Powell and other FOMC members about their expectations for interest rates in the future have in some cases muddied rather than clarified conditions for markets.Bloomberg News How the Federal Reserve conveys its monetary actions has become almost as important as the policies themselves.With so much uncertainty around key economic developments, some bank executives, analysts and economists say the Fed's communications — such as Fed Chair Jerome Powell's regular press conferences, one of which is coming Wednesday — could be doing more harm than good."Forward guidance provided by the Federal Reserve can be helpful, if it is accurately done and if they stick to it," said Komal Sri-Kumar, a senior fellow at the Milken Institute and independent macroeconomic consultant. "It is like I come to you asking for directions on the road, if you give me poor advice and send me the wrong way, I'm worse off with the forward guidance. That, I believe, is what has happened with the Fed."Sri-Kumar said the Fed's forward guidance — both its formal, voted upon policy statements as well as remarks and forecasts from individual officials — has been faulty for years. He said the Federal Open Market Committee's view that inflation would be transitory in 2021 had ruinous consequences for banks that loaded up on long-dated Treasury securities before what turned out to be a run of steep rate hikes. He and others fear that a similar reversal could happen again. The consensus expectation of financial institutions coming out of the past three FOMC's meetings has been multiple rate cuts in 2024. But recent comments from Powell — that it could take "longer than expected" for the Fed to feel price increases slow down sustainably — have cast new doubts on those projections."It's hard to view where interest rates are going, given what the Fed has said recently versus what the expectations were at the beginning of the quarter," said Thomas O'Brien, CEO of the $2.4 billion-asset Sterling Bancorp in Southfield, Michigan, on the company's first-quarter earnings call last week.Now, companies are shifting guidance or waiting before offering more. U.S. Bancorp shaved its full-year income projection in a move HSBC analyst Saul Martinez called "disappointing." Cullen/Frost Bankers announced on its earnings call that it was slashing its rate-cut expectations from five throughout the year to just two in the fall. It also cut its deposit growth projection for the year, as consumers across the industry ditch non-interest-bearing accounts for places to park their money with higher yields.John Corbett, CEO of SouthState Corp., said on the bank's recent earnings call that the institution was aiming for "flexibility and optionality" amid the economic uncertainty."We're all trying to play economists and forecast the yield curve," he said. "We don't have a crystal ball. The only thing we know for sure is that all of our forecasts will be wrong."Some say this uncertainty, as uncomfortable as it may be for bankers, is forward guidance working as it should by bracing the market for potential changes well in advance. Michael Redmond, a U.S. policy economist for Medley Global Advisors, said the primary issue related to forward guidance in recent months has not been the Fed being too rosy in its projections, but rather market participants being given an inch of optimism and stretching it a mile."There was a market narrative that got ahead of the Fed," Redmond said. "Maybe the Fed could have done more to extinguish that, but in December, when the Fed was signaling three cuts and the market wanted to price in six or more, the Fed certainly wasn't cheerleading that process."Meeting by meeting, word by wordDuring his post-FOMC press conferences, Powell frequently notes that policies are made on a "meeting by meeting" basis and do not have a predetermined policy path. Instead, he notes, the committee's decisions are influenced by the most recent data reports. But, the financial sector parses the FOMC's communications carefully for insight into how the Fed sees the future unfolding. And sometimes a single word or phrase can, in fact, carry a lot of weight.In December, Powell was asked about the insertion of the word "any" before the phrase "additional policy firming" in the FOMC's policy statement, which is voted on by the 12 committee members. Such statements are typically crafted to garner maximum support and tend to change little from one meeting to the next."So, we added the word 'any' as an acknowledgement that we believe that we are likely at, or near, the peak rate for this cycle," Powell said during his press conference. "Participants didn't write down additional hikes that we believe are likely, so that's what we wrote down. But participants also didn't want to take the possibility of further hikes off the table."While the Fed's policy statement is written by consensus — and often supported unanimously — it is not the only insight to emerge from the committee. Some see significant discrepancies between the statement, Powell's press conference remarks and subsequent comments from individual board members and reserve bank presidents.Sri-Kumar said the Fed's consensus-based approach to policymaking results in guidance that appears more resolute than it actually is, and can make it difficult for outsiders to square divergent views among different officials. "In the formal meeting, there are no dissents, so you would think all of them feel similarly, except that once they leave the meeting they all go to the press and say various things that are different from the way they voted," Sri-Kumar said. "So the whole picture is very confused."Redmond said putting out a consensus policy while also acknowledging disparate policymaker views is an issue with which many central banks must contend. "It's complicated when you have 19 different policymakers who have essentially different weights in terms of importance for the decision, but you also want to make it seem like it's a committee that's coming to a consensus, albeit with some disagreement," he said. "There's not really an easy way of communicating all the nuances that they probably wish they could communicate."Dipping dotsWhile Powell's post-meeting comments contributed to the widespread view that the Fed was preparing for a cut, the remarks were not the only communication from the committee fueling this view. There was also the quarterly summary of economic projections.Also known as the "dot plot" — participant views are reflected as a dot on a chart of potential outcomes — the December report showed 11 of the 19 participants expected the federal funds rate to fall by at least three-quarters of a percentage point by the end of this year, equal to three quarter-point cuts, with one participant anticipating six cuts. The March dot plot showed 9 participants projecting three cuts and one calling for four. Powell often reiterates that the forecasts belong to the individual participants — not the FOMC as a whole — and are based on present-day data that is subject to change. "These projections are not a Committee decision or plan," Powell said last month. "If the economy does not evolve as projected, the path for policy will adjust as appropriate to foster our maximum-employment and price-stability goals."Still, despite these caveats, Derek Tang, co-founder of the Washington-based research firm Monetary Policy Analytics, said financial market participants tend to take SEP projections as something akin to gospel."There's a lot of dependence on the dot plot to convey a baseline scenario," Tang said. "The Fed has always said the dot plot is contingent on the economic data unfolding in the way portrayed by the corresponding macro forecasts, but that part is often lost in the conversation."Following last month's FOMC meeting, most Fed funds futures traders expected at least three rate cuts this year, according to the CME FedWatch Tool, which tracks derivatives contracts related to the policy rate. At the time, the model estimated a 75% probability that the Fed would cut rates three times or more. As of April 25, that probability had fallen below 12%, while the prospect of zero cuts has risen from essentially zero to nearly 20%. Brent Beardall, CEO of Seattle-based WaFd Bank, said the Fed overshares its dot plots and projections that move markets without certainty in those guides. He added that it's a "fallacy" that the agency can predict the future, and setting expectations can make the economic environment "frothy.""We go too far in today's day and age," Beardall said. "Let the Fed say, 'Here's the data we have. Here's the decision we have today. Here are the things we're looking at in the future, but we don't know where rates are going to go.'"Communication breakdownThe idea of forward guidance is a relatively new and constantly evolving practice within the Fed. The policy statement, the summary of economic projects and the post FOMC press conference are all developments of the past few decades. Previously, the committee's policy changes went unannounced and had to trickle through the economy quietly.The Fed has adopted its various means of communication to smooth the implementation of monetary policy. But there has long been a debate about whether more communication creates a clearer signal or just more noise.Former Treasury Secretary Larry Summers said the Fed should offer fewer takes on the economic situation to preserve its credibility. Speaking at Semafor's Washington Summit earlier this month, Summers said the agency should take a page from the books of longtime former Fed Chairs Paul Volcker and Alan Greenspan on keeping messages accurate and ambiguous."The basic lesson of the Delphi Oracles, which is that if everybody thinks you're omnipotent and omniscient, but you're actually human, don't say too much," Summers said. "And keep what you say vague and oracular so that you can preserve your credibility."John Williams, president of the New York Fed and vice chair of the FOMC, said at the same event that the Fed offers its projections and data, "to help, as best as we can, for the public to see how we're thinking, what's driving our decisions and hopefully align the public's expectations with what we're trying to do." In response to Summers's comments, Williams added that the data the agency uses today is "dramatically different than the data of the past," providing finer detail more quickly.Tang said the Fed has an obligation to provide guidance, not only because of the impact of its policy rate, but also because of its large presence in financial markets via its balance sheet, which includes more than $7.4 trillion of assets. He said he expects the topic of communication to feature heavily in the central bank's upcoming review of its approach to monetary policy next year."They recognize that medium is message here," Tang said. "The way they communicate their forecasts or communicate scenarios can tie their hands a little bit, can impose limitations on the type of guidance that they can give the market and how effective it is."Still, while the Fed's messaging can confound and frustrate market participants, they don't expect the agency to be clairvoyant. "It is really easy to be in the cheap seats to sit out here and see what they're doing and to criticize," Beardall said. "They have a very, very tough job to do. But if I were in their seats, I think it would be helpful if I wasn't having to publicly try to predict the future."