Rates Resilient Despite Rising Inflation & Fed Actions

Good news to report this week as the latest survey of average mortgage rates revealed a slight improvement. Add to that, on Friday we saw a more optimistic than expected Jobs Report with 531K new jobs created; and news from Pfizer on a new covid therapeutic drug that is reportedly 90% effective in fighting the coronavirus.

There also was an important Fed Meeting and the members decided to begin slowing down bond purchases beginning this month and continuing through December. After that they said they will evaluate the effects on the markets and economy and decide on next steps. It’s uncertain how much this tapering will move mortgage rates, but we’ll soon find out!

What I’m watching this week…

One of the headlines to come out of Friday’s Jobs Report was the rise in wage inflation. Leisure and hospitality wages rose by 13%! Overall wages inflated by 5%. Both represent greater inflation than expected. 

The unemployment rate dropped to 4.6%; however our Workforce Participation Rate stands at a 50-year low of 61.6%.

As we know, inflation is the archenemy of bonds and can urge mortgage rates higher. There are two of the most important inflation reports on tap for this week – the Consumer Price Index and the Producer Price Index (PPI).

First up was the wholesale price report (PPI) on Tuesday. Headline producer prices have been highly elevated, rising 0.5 percent on the month and 8.6 percent on the year in September. Forecasters weren’t looking for any cooling in October, at a consensus gain of 0.6 percent on the month to hold at the 8.6 percent annual rate. 

Next up is the CPI on Wednesday. Consumer prices are expected to rise a monthly 0.5 percent in October with the ex-food ex-energy core seen up 0.4 percent. These would compare with September’s 0.4 percent overall rise and the core’s 0.2 percent gain. Respective annual rates are seen at 5.8 percent and 4.3 percent, both higher than September’s readings.

I’ll continue to watch the effects of the Fed’s tapering and rising inflation on interest rates and report back next week. In the meantime, follow me on social media – links below – to stay up to date.