Retail Sales Near Expectations
Although mortgage rates this week have been dropping thus far, we saw a bit of inflationary pressure start to creep into the market last week, which led rates slightly higher. Federal Reserve Chairman Ben Bernanke, however, did mention last week that he expects an increase in commodity prices to create a `transitory` boost in U.S. inflation....So long as inflation expectations remain stable and well anchored….the increase in inflation will be transitory,` Some of the other drivers around interest rate pressure last week were the European Central Bank increasing their rates by 0.25%, as well as some Federal Reserve policymakers starting to hint that the Fed may need to raise rates before the end of 2011.
This week, the economic impact of continued earthquakes in Japan and their upgrade to the highest nuclear threat level has caused rates to level off. Retail sales in March were also reported near expectations which eased some of the imminent inflation concerns. Today, the release of the White House Administration’s plan to cut $4 trillion from the deficit over 12 years has led analysts to further trim back inflation concerns, as fewer government jobs and less spending by the government should slow the pace of economic growth.
The Consumer Price Index and Industrial Production reports are both due on Friday which should provide additional light into economic growth and inflation outlook. Producer Prices for March are due out tomorrow as well.
As we look ahead, one offset to possible higher interest rates due to inflation has been an increased interest and activity from new investors in the mortgage space. Not only are we able to utilize more and more bank portfolios to offer mortgage products, but demand from the securitization and capital markets sector is adding more competition and better rates for mortgage products being offered. This will especially be important as Fannie Mae and Freddie Mac begin to become de-emphasized in the months and years ahead.