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Bernanke Stirs Up Inflation Fears

By
Real Estate Agent with Keller Williams - The Scenic City Team

By Angel Sherlin

Fed Cheif BernakeUsually the monthly Employment report is the main event of the week, but Fed Chief Bernanke stole the show.   Following the theme of other Fed officials in recent weeks, Bernanke focused on inflation risks in multiple speeches, and his comments were unexpectedly direct. According to him, inflation expectations are a "significant concern."  He explained that the decline in the value of the dollar and the increase in the cost of energy were adding to inflationary pressures.  Inflation is negative for mortgage investors, and mortgage rates rose for the fourth straight week due to increased concern.

At the end of a volatile week, investors were closely watching Friday's important Employment report.  The headline number came in right on target, with a loss of -49K jobs in May.  The big surprise came from the change in the Unemployment Rate.  Expected to rise slightly to 5.1% from 5.0% in April, it instead jumped to 5.5%, the highest level since October 2004.  Economists attributed the spike to an unusually large influx of young adults entering the labor force to find summer jobs, so the reaction in the mortgage market was modest.

ALSO NOTABLE:

* In May, the Unemployment Rate showed the largest monthly increase since February 1986

* The Bank of England and the European Central Bank both held rates steady

* The Fed's Lacker suggested that the programs put in place to ease the credit crunch may encourage excessive risk taking

* Oil prices declined as low as $122 per barrel, but then rose again to record levels near $135 per barrel

Keahi Pelayo
KU Realty - Honolulu, HI

If in fact inflation is on its way, real estate is where you want to be.  As for unemployment reaching the highest level since 2004, in Hawaii, 2004 was an incredible year.  Keep up the interesting posts.

Aloha,

Keahi

Jun 06, 2008 06:23 AM
Andy Hodes
Keller Williams - The Scenic City Team - Chattanooga, TN

Hi Keahi - Thanks for your comment.  Inflation would be good for home prices, but inflation also causes mortgage rates to go higher.  It's a roller coaster ride for sure.  Andy

Jun 06, 2008 06:35 AM