Rate Watch
As concerns about inflation, oil prices, and additional Fed hikes linger, mortgage rates continued to rise. As I posted on the blog last week, Bankrate's overnight average reached its highest mark since 2002. Additionally, Freddie Mac's weekly survey posted the highest average it has seen since Sept. 5, 2003. The benchmark 30-year Fixed Rate mortgage (FRM) averaged 6.43 percent, up from the previous week's 6.35 percent. Other products saw similar bumps. The average for the 15-year FRM was 6.10 percent up from 6.00 percent, and one-year Treasury-indexed ARMs averaged 5.57 percent up from the previous week when it averaged 5.51 percent.
Throughout the week, Friday’s employment report was ever present. The markets anticipated strong employment numbers and the report did not disappoint. Against a consensus estimate of 190,000, the US economy added 211,000 new jobs. The Unemployment Rate slipped lower to 4.7%, while it had been expected to remain at 4.8%. Of course, this is great news for workers. Jobseekers are finding it much easier to find jobs than they have in recent memory. Unfortunately, the closer the economy gets to full employment the greater the opportunity for accelerating inflation. A shortage of workers would lead to a bidding war for new hires which would lead to higher prices for goods and services (i.e. inflation). In order to combat this scenario from transpiring the Federal Reserve must raise rates to cool off the economy. So as we get this employment report and higher prices at the gas pump, inflation fears are running high. Inflation is a bond's kryptonite. As inflation accelerates, it destroys a bond's value and yields must go up to attract buyers.
The markets will have to brood over this report for the next few days. The economic calendar is completely empty Monday and Tuesday. Starting Wednesday, there will be a string of moderately important reports released. Wednesday’s Trade Balance report shows us how large our trade deficit has gotten this month. This report rarely has a big impact on rates. On Thursday, the Retail sales report has the potential to make a little more noise. Consumers account for a majority of economic activity. There will also be a Consumer Sentiment report release that same day. On Friday, the focus will shift to business performance. The Industrial Production report provides us with the output of US factories, mines, and utilities. This report will be closely watched by the Fed and the markets.
Overall, it will be a pretty slow week. I imagine that rates will either will go unchanged or move even higher. There is currently no end in sight for the Fed’s rate hike bonanza. This uncertainty does not bode well for low interest rates. Borrowers should lock their rates at the earliest time possible.
posted by Vincent Biondillo @ 9:23 AM
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