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Market Comment
Mortgage bond prices finished the week lower which put additional upward pressure on rates. The selling pressure continued as inflation fears dominated headlines. The consumer reading hit marks not seen since 1982 with a 7% yearly increase. Consumer prices on a monthly basis rose 0.5% as expected. However, the core, which excludes volatile food and energy, rose 0.6% vs 0.5%. The rest of the data was mixed. Producer prices rose 0.2% vs 0.4% and the core rose 0.5% as expected. Retail sales fell 1.9% vs the expected 0.2% increase. Production fell 0.1% vs the expected 0.4% increase. Capacity use was 76.5% vs 77.1%. Sentiment was 68.6 vs 68. Mortgage interest rates finished the week worse by approximately 1/2 of a discount point.
Looking Ahead
| Economic Indicator | Release Date & Time | Consensus Estimate | Analysis |
| Consumer Price Index | Wednesday, Jan. 12, 8:30 am, et |
Up 0.4%, Core up 0.5% |
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates. |
| Weekly Jobless Claims | Thursday, Jan. 13, 8:30 am, et |
205K | Important. An indication of employment. Higher claims may result in lower rates. |
| Producer Price Index | Thursday, Jan. 13, 8:30 am, et |
Up 0.4%, Core up 0.5% |
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates. |
| Retail Sales | Friday, Jan. 14, 8:30 am, et |
Up 0.4% | Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates. |
| Industrial Production | Friday, Jan. 14, 9:15 am, et |
Up 0.4% | Important. A measure of manufacturing sector strength. A lower-than-expected increase may lead to lower rates. |
| Capacity Utilization | Friday, Jan. 14, 9:15 am, et |
76.9% | Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates. |
| U of Michigan Consumer Sentiment | Friday, Jan. 14, 10:00 am, et |
70.6 | Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates. |
Higher Rates
Rates spiked considerably higher recently amid rising inflation warnings and fears. The Fed reported, “Economic activity across the United States expanded at a modest pace in the final weeks of 2021. Contacts from many Districts indicated growth continued to be constrained by ongoing supply chain disruptions and labor shortages. Despite the modest pace of growth, demand for materials and inputs, and demand for workers, remained elevated among businesses. Lending activity picked up slightly toward the end of the year, led by commercial real estate borrowers. Consumer spending continued to grow at a steady pace ahead of the rapid spread of the Omicron COVID-19 variant. Most Districts noted a sudden pull back in leisure travel, hotel occupancy and patronage at restaurants as the number of new cases rose in recent weeks. Although optimism remained high generally, several Districts cited reports from businesses that expectations for growth over the next several months cooled somewhat during the last few weeks. The manufacturing sector continued to expand nationally, with some regional differences in the pace of growth.”
Fed Chair Powell said the economy no longer needs aggressive stimulus and that the Fed is ready to raise rates and reduce MBS and Treasury holdings. He told the U.S. Senate Banking Committee that inflation remains a “severe threat.”
Where mortgage rates will be in the months ahead remains uncertain. Now is a great time to take advantage of mortgage interest rates at these levels.
