Recap of Last Week
Talk about inflation was the big market mover last week. Starting on Monday, Ben Bernanke said that the fed is in no hurry to hike rates because of the ‘slack’ in the economy. Many economists disagree with him, but this led to a worsening of rates on Monday. Philadelphia Fed President Charlie Plosser came in and said the Fed has to ‘take the appropriate steps to do something about inflation’. His statements contributed to the sell-off.
Keep in mind positive news makes mortgage rates worsen. Strong April pending home sales and May’s retail sales report came in better than expected and they kept the pressure on rates.
Friday was an extremely interesting day. The Consumer Price Index (CPI) was tough to read. Overall inflation was up to 4.2%, which is the highest it’s been in some time. Not hard to believe considering the high cost of energy. If you’re not clear on the indicators, you may have read this report to show an extremely high inflation. The Fed tends to follow the Core Rate of inflation. Core inflation takes out both food and energy in their numbers. The Core Rate came in at 2.3%, a much more reasonable number! This ended up being a more likable number for mortgage backed securities traders. Rates recovered just a little on Friday from being beat up all week long.
Overall, rates worsened to the worst levels they’ve been for quite some time pushing through many of the major support levels. Hold on, hopefully things will have a bit of a rally back up next week (just don’t hold your breath).
