Tepid Inflation and Retail Sales Keep Rates Flat
Core CPI inflation, which excludes the volatile food and energy components, was 2.2% higher than a year ago, down from a 2.3% annual rate in February, and below the consensus forecast. This follows four straight months of increasing levels of core inflation and may be the start of a trend lower. Fed Chair Yellen commented that she was concerned that after some recent upticks, inflation could trend downward. It would be good for mortgage rates if inflation continues to decline, as low inflation allows the Fed to potentially postpone any future rate hikes and supports sustained low mortgage rates.
Retail sales in March were a good deal weaker than expected. The results were decent, but investors were looking for better. Excluding the volatile auto component, retail sales increased 0.2% from February, which was the largest increase in four months, but it was half the expected level. Consumer spending is an important component of gross domestic product (GDP), and it was somewhat surprising that the report caused so little reaction.
Factors: The biggest event may be Thursday’s European Central Bank (ECB) meeting. Bond purchases by the ECB have helped keep global bond yields low, so comments about future policy could have an impact on U.S. mortgage rates. A variety of housing data comes out this week as well.
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