The US stock market continues to defy logic and is currently setting new all-time high levels. The stock market’ growth has largely been fueled by the Federal Reserve’s bond buying program, which has pushed many investors out of fixed return investments for the hope of larger gains within the stock market. This points out one major risk to the low interest rate environment that impacts our older population who is forced to take on risk just to obtain a livable return on their investment accounts. As the Fed drives rates lower, there are few opportunities to receive a decent return without taking on risk. Given the age of many retirees, stock market risk is not something that has been considered as reasonable for this population segment. Let’s just hope that we don’t see a significant drop in stock prices.
This morning we received an update on the Fed’s favorite measure of inflation, the Personal Consumptions Expenditures (PCE) rate. Headline inflation numbers increased by .3% last month, driving the annualized rate from 0.9% up to 1%. When stripping out food and energy prices, the Core rate increased by 0.3% last month, with an annualized increase moving from 1.1% up to 1.3%. Given that we are still well below the Fed’s target rate of 2%, there is a long way for inflation to rise before having much concern. However, given the current growth rate, and the amount of government stimulus, we could see a 2% rate happen within the next year.
Mortgage interest rate pricing has been moving higher the past week. However, today we are seeing bond prices stabilize. As long as prices can hold above their 25 day moving average, there is no need to rush to lock. However, if prices break beneath this critical level, lock.