Watch the market closely

Inflation is softer than expectations, with the Personal Consumption Expenditures reporting a Core Rate (stripping out food and energy prices) increase of just 0.1% from the month prior.  Since this replaces the 0.2% from this time last year, the year over year rate moved lower from 1.7% down to 1.6%. Since PCE is the Fed’s favorite gauge of inflation, this is not moving in the direction they were hoping. Their target for this rate is 2%, so a decrease in PCE removes some of the pressure of the Fed making an imminent move any time soon. 

The Employment Cost Index was also released today. Back in the day, this was prior Fed Chairman Alan Greenspan’s favorite measure of inflation and was therefore a significant market mover. The release showed an increase of 0.6%, which was in line with the market’s expectations. The year over year figure fell slightly to 1.9% from 2.0%. In light of the recent increase in minimum wage in many states, this was overall not shocking to the market. 

Mortgage bonds are holding steady so far this morning. Stock prices are helping to support stability within the bond market, which provides more opportunity for continued improvement to interest rates. As long as bonds remain above the current floor of support, there is no need to immediately lock. However, watch the market closely and be prepared to lock if bonds slip below support.