Last week, you couldn't watch the financial news for longer than a few minutes without hearing about the "subprime meltdown", talking about a certain type of home loan experiencing heavy rates of default and foreclosure, and what the potential consequences might be on the US economy. Please know that subprime lending only represents a very small portion of home loans overall...I truly believe the media loves to share "doom-and-gloom".
Perhaps the "subprime meltdown" while it has been overblown, there certainly will be some ramifications. Overall, the news and hype did worry investors, and both Stocks and Bonds experienced an increase in volatility...but home loan rates in Raleigh ended up very close to where they started for the week.
In other news, Retail Sales came in a bit weaker than anticipated last week - but with a freezing cold February across most of the US, it wasn't exactly the best month to go hit the malls. The Producer Price Index (which measures wholesale inflation) and the Consumer Price Index (which measures retail inflation) both came in a bit hotter than had been expected, indicating that inflation has been stubbornly persistent in the economy. What must the Fed think of all this - and what will they do at their upcoming meeting?
Friends, the week ahead holds a few real headliner news items, including a new round of housing data to sift through, including Housing Starts and Building Permits on Tuesday, and Existing Home Sales next Friday. But, the financial highlight of the week will be the Fed Meeting and resulting Policy Statement.
There has been rumors of a Fed Funds Rate cut to help the housing market or to smooth out the subprime home loan problem...I truly do not believe this will happen. The Fed's main charge is to control inflation, period. And they will only consider cutting rates if the core rate of inflation, as measured by the Personal Consumption Expenditure (PCE) Index, falls below 2% for a few consecutive months. The latest Core PCE was 2.3%, so don't look for Home Equity Lines of Credit or other adjustable home loan rates that are tied to the Fed's movements to be dropping anytime soon.