Inflationary concerns and a less than expected .25% Fed rate cut sent investors back to the security of bonds. This puts the Fed and the economy in a very precarious position. If inflation continues to increase as indicated by last Friday’s Consumer Pricing Index Report and we do in fact enter a recession ( the economy has been slowed by the housing slump and the credit crunch and Mr. Greenspan increased his odds on a recession from 33% to 50%.), the Fed will have to make a decision. Either lower the Fed rate to spur the economy and let inflation continue or leave the Fed rate as is or increase it to stem inflation. We think the Fed will do whatever it takes to hold inflation in check and as a result interest rates across the board will increase over the lang term.
We will know more by the end of this week as manufacturing in the New York area reports on Monday. Housing starts for November reports on Tuesday. Personal income and Spending will report on Friday along with the Core Personal Consumption Expenditure.
Stay tuned and stay in touch with your mortgage professional. Thank you for the opportunity to serve you and your clients. David. 919.851.0999