Tag Archives: Inflation

What’s Ahead For Mortgage Rates This Week: February 25th, 2013
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What's Ahead This WeekA quiet past week in economic news caused mortgage rates to worsen slightly.

This week, however, will be packed with economic reports which may have an impact on interest rates going forward.

Freddie Mac reported that the average rate for a 30-year fixed rate mortgage rose by 3 basis points from 3.53 percent to 3.56 percent with borrowers paying 0.8 in discount points and all of their closing costs.

The average rate for a 15-year fixed rate mortgage was unchanged from last week at 2.77 percent with borrowers paying 0.8 in discount points and all of their closing costs.

In other economic news, the Consumer Price Index (CPI) for January fell slightly to 0.0 percent as compared to Wall Street expectations of 0.1 percent and December’s reading of 0.1 percent.

The Core CPI, which measures consumer prices exclusive of volatile food and energy sectors, was 0.3 percent for January and surpassed analyst expectations of 0.2 percent and December’s reading of 0.1 percent.

Inflation Remains Low

These readings remain well below the 2.5 percent inflation level cited by the Fed as cause for concern.

According to the Department of Commerce, Housing Starts for January fell to 890,000 from December’s 954,000 and below Wall Street projections of 910,000.

These seasonally adjusted and annualized numbers are obtained from a sample of 844 builders selected from 17,000 newly permitted building sites.

Falling construction rates could further affect low supplies of homes reported in some areas; as demand for homes increase, home prices and mortgage rates can be expected to rise.

Full Economic Calendar This Week

This week’s economic news schedule is full; Treasury auctions are scheduled for Monday, Tuesday and Wednesday. New Home Sales will be released Tuesday.

Fed Chairman Ben Bernanke is set to testify before Congress on Tuesday and Wednesday.

Wednesday’s news includes the Pending Home Sales Index and Durable Orders.

Thursday’s news includes the preliminary GDP report for Q4 2012, the Chicago Purchasing Managers Index, and weekly jobless claims.

Friday brings Personal Income and Core Personal Expenditures (CPE).

Consumer Sentiment, the ISM Index and Construction Spending round out the week’s economic news.

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Breaking Down The Federal Reserve Statement (January 2013 Edition)
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FOMC statementThe Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the Federal Funds Rate within its current range of zero to 0.25 percent, and to continue its current stimulus program of purchasing $85 billion monthly in Treasury bonds and mortgage-backed securities (MBS).

Citing weather-related events such as Hurricane Sandy and drought in the Midwest, the committee said in its statement that information received since its December 2012 meeting “suggests that growth in economic activity has paused in recent months in large part because of weather-related disruptions and other transitory factors.”

Concerns over the then-looming fiscal cliff crisis may have also contributed to the economic contraction during the last quarter of 2012. Positive economic trends observed by the Fed included:

  • Improved household spending
  • Improving housing markets
  • Growth in business fixed investments

The Fed initiated its third round of quantitative easing (QE3) in September as part of an ongoing effort to hold down interest rates and to encourage business spending. The benchmark Federal Funds Rate will remain between zero and.0.25 percent until the unemployment rate falls to 6.5 percent and provided that inflation remains stable.

The Fed Funds Rate has stayed near zero since December 2008.

The national unemployment rate was 7.8 percent in December, and Wall Street expects it to be 7.7 percent for January. The Department of Labor will release its monthly jobs report on Friday; this report includes the monthly unemployment rate. Inflation is expected to remain at or below the Fed’s target level of 2.0 percent or less for the medium-term.

While noting that “strains on global financial markets have eased somewhat,” the FOMC said that it “continues to see downside risks to the economic outlook.” Low overall interest rates and gradual inflation work in favor of home buyers as home prices and mortgage rates are likely to rise at a gradual pace.

Mortgage rates in Sedona improved slightly after the FOMC release.

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Fed Minutes Suggest Fiscal Stimulus Later This Year
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FOMC Fed MinutesThe Federal Reserve released the minutes from its June Federal Open Market Committee meeting, revealing a Fed divided on the future of the U.S. economy. Mortgage rates are higher after the release of the minutes.

The Fed Minutes is the detailed recap of an FOMC meeting. It is the companion piece to the more brief, more well-known post-meeting FOMC press release.

For a comparison, whereas the Fed’s June 20, 2012 press release contained 5 paragraphs and 490 words, the same meeting’s minutes contain 62 paragraphs and 7,508 words. The extra detail afforded by the extra words Wall Street gives insight into the nation’s central banker.

The June Fed Minutes, for example, suggest that the Fed may soon add new economic stimulus. 

Recent data suggests that the U.S. economy is expanding, but more slowly that it was at the start of the year. The Fed acknowledged that this, in part, is the result of “below-trend” growth in Euro-area economies, plus a general slowdown in China.

The Fed also said that “strains in global financial markets” continue to pose “significant downside risks” to the U.S. economy. The Fed expects U.S. growth to “moderate over coming quarters”.

Other notes from with the Fed Minutes included : 

  • On housing : Home sales, construction and prices suggest improvement
  • On inflation : Prices are stable, and inflation will remain “subdued” through 2014
  • On new policy : Rapid fiscal tightening poses a “downside risk” to the economy

In addition, there was discussion about whether the Fed is missing its dual mandate of low inflation and low unemployment. Several Fed member discussed the need for new stimulus to raise employment and to raise the rate of inflation. This action could occur as soon as next month.

If the stimulus was enacted, mortgage rates would likely rise because inflation, in general, is a threat to low mortgage rates.

The next Federal Open Market Committee meeting is a 2-day affair scheduled for July 31-August 1, 2012. 

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A Simple Explanation Of The Federal Reserve Statement (April 25, 2012)
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Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the fifth consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. It is expected to remain near-zero through 2014, at least.

In its press release, the Federal Reserve noted that the U.S. economy has been “expanding moderately” since the FOMC’s last meeting in March. Beyond the next few quarters, the Fed expects growth to “pick up gradually”. 

This key phrase will likely be repeated by the press. It suggests that the economy is no longer contracting; instead moving along a path of slow, consistent expansion.  

In addition, the Fed acknowledged that “strains in global financial markets” continue to pose “significant downside risks” to long-term U.S. economic outlook. This is in reference to the sovereign debt concerns of Greece, Spain and Italy, and the potential for a broader European economic slowdown.

The Fed’s statement included the following notes :

  1. The housing sector remains “depressed”
  2. Labor conditions have “improved in recent months”
  3. Household spending has “continued to advance”

Also, with respect to inflation, the Fed said that the higher oil and gasoline prices from earlier this year will affect inflation “only temporarily”, and that inflation rates will return to stable levels soon.

At its meeting, the Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs. The Fed re-affirmed its intentions to hold the Fed Funds Rate at “exceptionally low” levels through late-2014, and to buy mortgage-backed bonds in the open market.

Immediately following the FOMC’s statement, mortgage markets improved slightly, pressuring mortgage rates lower in Cornville and nationwide.

The FOMC’s next scheduled meeting is a two-day event slated for June 19-20, 2012.

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A Simple Explanation Of The Federal Reserve Statement (March 13, 2012)
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Putting the FOMC statement in plain EnglishTuesday, the Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

For the fourth consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008. It is expected to remain near-zero through 2014, at least.

In its press release, the Federal Reserve noted that the the U.S. economy has “expanded moderately” since the FOMC’s January 2012 meeting, adding that growth is occurring despite “strains in the global financial markets” that pose “significant downside risks” to long-term outlooks.

The Federal Reserve now expects moderate economic expansion through the next few quarters and a gradual easing in the national Unemployment Rate.

The Fed also noted that :

  1. The housing sector remains “depressed”
  2. Labor conditions have “improved further”
  3. Household spending has “continued to advance”

With respect to inflation, the Fed said that rising oil and gasoline prices will “push up” inflation temporarily, but not over the long-term.

At its meeting, the Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs. The Fed re-affirmed its intentions to hold the Fed Funds Rate at “exceptionally low” levels through late-2014, and to buy mortgage-backed bonds in the open market.

Immediately following the FOMC’s statement, mortgage markets worsened slightly, pressuring mortgage rates higher in and around Cornville. 

The FOMC’s next scheduled meeting is a two-day event slated for April 24-25, 2012.

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Federal Reserve Wary Of European Spillover
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FOMC Minutes January 24-25 2012The Federal Reserve has released the minutes from its 2-day meeting January 24-25, 2012.

The Fed Minutes is a summary of the conversations and debates that shape our nation’s monetary policy. It receives less attention than the Fed’s more well-known, post-meeting press release, but the Fed Minutes is every bit as important.

To rate shoppers in Cottonwood , for example, the Fed Minutes can provide clues about whether mortgage rates will generally rise or fall in the coming months.

The most recent Fed Minutes reveals a central bank divided on the future of the U.S. economy. The minutes show some Fed members in favor of new, immediate market stimulus. It shows others in favor of terminating the stimulus that’s already in place.

The Fed’s debate centered on the topic of inflation, and the pressures that a prolonged, near-zero Fed Funds Rate can place on the economy. Ultimately, the Fed did nothing, neither adding new stimulus nor removing that which is already in place.

It did, however, communicate a plan to keep the benchmark Fed Funds Rate rate “exceptionally low” through late-2014, at least.

The Fed Minutes included the following notes, too :

  • On employment : Unemployment rates will “decline only gradually” in 2012
  • On housing : The market is “held down” by the “large overhang” of distressed homes
  • On inflation : Consumer prices have remained “flat”

Furthermore, the Fed expressed optimism regarding European financial markets, noting that market sentiment “appeared to brighten a bit”. Nonetheless, “spillovers” remain possible and the threat continues to weigh on markets. 

Mortgage rates are slightly worse since the Fed Minutes were released. 

The Federal Reserve’s next scheduled meeting is March 13, 2012 — its second of 8 scheduled meetings this year.

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