All Eyes on the Fed
Welcome to another edition of Sunrise Economix, where I’m sharing the freshest updates from the housing market, peppered with exclusive insights and valuable information tailored just for you.
As expected, this week has been a bit quiet on the mortgage rate front while we await the Federal Reserve meeting next week. This week, we had two important inflation reports: the Consumer Price Index (CPI) and the Producer Price Index (PPI). We also had the positive result of the 10-year treasure auction and the European Central Bank’s (ECB) rate cut of 25 bps. Next week’s virtual certainty of a rate cut will be announced on Wednesday.
The August CPI report showed that overall (headline) inflation rose 0.2%, as expected. The year-over-year inflation number decreased from 2.9% to 2.5%, while markets were expecting 2.6%. The Core rate was a little worse than expectations, rising by 0.3%. The year-over-year Core CPI remained at 3.2%. Inflation remains high due to the two big culprits: shelter costs and motor vehicle insurance. 89% of these inflation numbers were from those two items.
The PPI report measures wholesale or producer inflation against the CPI, tracking the prices that consumers actually pay. August PPI rose 0.2% but the market was expecting 0.1%. Year-over-year fell to 1.7% from 2.1%. The core PPI rate rose 0.3% in August but annually rose to 2.4%. The market was expecting 0.2% and 2.4%, respectively. Producers don’t always pass on their cost increases to consumers, so the markets are more interested in CPI than PPI. If the price increases continue, however, it is sure to show up in CPI eventually. It is good to see these rates so low. The Fed loves the Personal Consumption Expenditures(PCE) report as their favorite inflation tracker. CPI is less important to them. Even still, it is clear that inflation is on the way to the Fed’s target of 2%.
Looking Ahead:
Next week will be Fed week, with their two-day meeting ending on Wednesday with their rate decision.
Tuesday: Retail Sales, National Association of Home Builders Market Index, 20-year Bond Auction
Wednesday: Housing Starts, Fed Rate Decision
Thursday: Existing Home Sales
Make sure that you have a plan for any volatility around the Fed meeting
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