Will Inflation Continue?
The question of inflation is a tricky one for several reasons, perhaps the biggest being that the Fed is in damage control mode. They're playing catch up in reckoning with their ignorance and incorrect actions based on their belief that the inflation we're knee-deep in would be "transitory" in 2021. We've seen that inflation is not only not transitory, but that it's spiraled to a point where it's tough to reign in. Last Friday, mortgage rates shot up nearly .5 percent based on updated inflation readings - the inflation reports weren't terrible when compared with the month before, but the fact that despite Fed actions and the rosy picture the white house has painted, the numbers aren't going down.
This week, the Fed is meeting and will announce another rate decision for the Fed funds rate (remember, the Fed funds rate does NOT directly impact mortgage rates, and often has an inverse relationship, being that when the Fed raises their rate, it often brings mortgage rates down). The expectation is for a .5 increase to the Fed funds rate. After last week's surprisingly high inflation numbers, though, some whispers are being heard that a more aggressive .75 hike may be in store. That would be a huge hike, and if it happens, it'll show exactly how big a problem the Fed really feels inflation is.
As for a crystal ball, there are a lot of opinions, but I thought I'd share one that came from Ameriprise, who I do some work with. If you need a financial advisor recommendation, Allen Weidman works with people around the country and does a phenomenal job - he provided this commentary from Ameriprise, and it gives some good insight as to what's happening, as well as what can be expected going forward.
This week will be a big one for inflation. My crystal ball shows things getting a little worse before they get better, but that we're near peak inflation and peak mortgage rates. When rates spiked above 5, I predicted they'd hit a ceiling in the low 6's - we're there now, and hopefully that's as high as things will get. As for other questions, Ameriprise's economists did a solid job covering the topic, so you can read more by clicking here
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