While most experts thought that they would raise the prime rate, some feared that they may not be giving us a potential for runaway inflation. So let’s go over the data in this week’s week-in-review.
Tuesday the Producer Price Index (PPI) was up 0.4% and the core rate was up 0.3%. This news was slightly unfriendly to our mortgage market investors.
Wednesday the CPI (Consumer Price Index) was up 0.4% with the core rate up only 0.1%. All a yawner as we waited for the FOMC (Federal Reserve Open Market Committee) to announce their decision and notes. The FOMC decided to raise the prime rate 0.25% (if they had left it alone or raised it .5% that would have been market moving news). But they also indicated that they see three hikes next year (we assume 0.25%).
They took the anxiety or hype so that the market will absorb these hikes now so when it actually happens, the markets will have “priced it in” to their investing already.
No rocking the boat with sudden news… unless they have to raise the prime rate 0.5% like they did in 2000.
On Thursday the November retail sales data came out with an increase of 0.8% and excluding auto sales was up a VERY strong 1.0%. Weekly jobless claims were also down 11,000 which is stronger than normal.
Those two things combined reflect bad news for fixed rates (i.e. rates going up).
Good news is the economy appears to be getting better. The bad news is inflation, which means higher mortgage rates. So lock in now!