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Inflation Rings in at a SMOKING HOT Level

By
Mortgage and Lending with Capital Line Funding Group

With Mortgage Backed Securities using using the 200 day moving average as a trampoline you wonder if this level of support can be sustained with the news that the overall measure of inflation at the wholesale level is at the SMOKING HOT level.

Now the Fed is really in an interesting situation, how to stimulate the economy with the Inflation reading in January that came in over twice the level they were hoping for (1% vs. .04%).  This raised the year overall Producer Price Index (PPI) reading to 7.4% which is the fastest rate for wholesale inflation since 1981.  Yikes!!!!

As if that weren't enough to worry about the core PPI (Core Producer Price Index) which excludes energy and food rose twice above their expectations to .04% also.  On Friday the Core PCE (Consumers Personal Consumption Expenditure) is due out, if it is lagging the Fed is faced with the need to consider how they can stimulate the economy without fanning the flames of Inflation further.  Is this a loaded freight train going downhill?????

While the higher cost of producing goods is not always factored into the cost of production and passed along to the consumer, if it is it could represent a significantly higher cost of goods reducing the purchasing power of the consumer thereby fueling inflation.  (Inflation = higher cost of goods with a reduction of consumer purchasing power) 

Along with this recent economic news comes the report that the Consumer Confidence Level is much lower than expected.  It came in at 75.0 rather than the 82.0 they expected suggesting a slowing economy.  Alright who's holding onto those gift cards purchased during Christmas, they aren't tallied as sales until used.  Go forth and spend!!

One of our favorite members of the Federal Reserve Governors and a voting member of the FOMC "Screaming"  Donald Kohn will speak on the "US Economy and Monetary Policy".  Let's adopt a wait and see attitude towards the message, hoping it brings good news for bonds.

Can they bounce off the 200 day moving average upon the news or will they sink lower?  Hopefully Kohn's message will have a trampoline affect giving bonds the needed lift thereby encouraging better mortgage rates.

Just another day to float and see; stay tuned, "it's a great life in the mortgage industry". 

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