Rates Up on Strong Economic Data
The Core PCE price index is the monthly inflation indicator preferred by the Fed, and the readings for January showed that inflation is rising more quickly than expected. Core PCE, which excludes the volatile food and energy components, was 1.7% higher than a year ago, and the highest level since February 2013. Low levels of inflation have helped keep mortgage rates low. If the trend toward higher inflation continues, it would be negative for mortgage rates.
January existing home sales, which make up about 90% of all home sales, increased to near the best level in seven years. They were 11% higher than a year ago. New home sales, which make up the rest of the market, declined in January. Low mortgage rates and solid job gains are having a nice effect on home sales.
Fourth quarter Gross Domestic Product (GDP), the broadest measure of US economic activity, was revised higher from 0.7% to 1.0%, above the consensus for a decline to 0.4%. GDP. The consensus is that 2016 will start on a better note. First quarter GDP growth is expected to rise to 2.0%, well above the levels seen during the first quarters of 2014 and 2015.
Week Ahead
Factors: Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.
Volatility: Moderate
Trend: Higher
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