Inflation Remains Tame

It’s business as usual this morning, with stock prices hitting new all-time high levels and mortgage interest rates being pressured higher in early morning trading. Mortgage bond prices remain at a critical juncture. If prices fall beneath the current level of support, which isn’t too far beneath where prices are currently, we can expect to see mortgage interest rates take another step higher. Given the continued strength of the stock market, we could see this happen. Let’s hope that bond prices hold their ground and rates don’t move any higher.

We received an update on consumer inflation this morning, from the Personal Consumption Expenditures (PCE) report for the month of November. Overall, inflation remains tame, which gives the Fed more ammunition to keep short term rates at current levels. The Core Rate, which strips out volatile food and energy prices, showed an annual growth pace of 1.6%. This is well beneath the Fed’s target level of 2%.

Of concern to the bond market was the Personal Income report that showed that workers’ incomes are growing at a faster pace than anticipated. This is a stimulant that fuels inflation. Since inflation is the arch enemy of the bond market, this was not helpful to hopes of mortgage interest rates in the longer term.

We will maintain a locking bias.