This morning’s Personal Consumption Expenditures (PCE) report showed that Headline consumer inflation increased 0.4% in the month of June. On a year-over-year basis, inflation increased from .5% up to .8%. When stripping out food and energy prices, Core PCE increased 0.2%, with the annualized pace decreasing from 1.0% down to 0.9%. With the Fed looking to target an annualized pace for the Core rate of 2.0%, there is a long ways to go before hitting that level. This provides the Fed room to continue the Quantitative Easing program that is helping drive mortgage interest rates lower.
Mortgage bonds remain strong once again this morning, as mortgage interest rates remain at unchartered low levels. With mortgage bonds continuing to climb higher, there is not a reliable ceiling of resistance to help predict at what point the rally will stall. For the time being, pricing to obtain a specific mortgage interest rate continues to fall. As long as the trend is in place, we will see downward pressure continue.
With the Fed committed to support the mortgage market, we have been experiencing an unusual level of stability in the interest rate market. If you choose to float, do so by closely watching the markets.