Mortgage Rates Increase as Inflation Draws Concerns

Mortgage rates rose again today following the economic data that pointed to higher inflation and an upbeat Retail Sales report, which was more than double what was expected.  In general, stronger economic data and higher inflation motivate investors to move money out of the bond market.

Yellen at the House today did not reveal anything new. She took heat from Republicans about the Fed’s efforts to increase growth and defended the Fed’s independence.  Other Fed officials out with the usual confusion and different opinions.  On February 6, Patrick Harker said that a rate hike should be on the table at the March 14-15 FOMC meeting.  He said today that he still sees three rate hikes in 2017. He said that after 8+ years of recovery, the economy is back to full health.  Yesterday Yellen did not actually commit to a March move but tilted slightly more to that view.

The Fed’s independence has been an increasing issue recently - more smoke than anything else. Not only is the Fed going to increase its importance in the future but play a more significant role in the currency and economic markets. Soon, the Fed will know about everything you spend, where, when and how much. Cannot give a date, and likely down the line a few years but the dollar is seeing its last days of a cash currency as is the yuan, the yen and what may be left of the euro currency. The use of cash is going away more rapidly than most of think. It will not be long that Treasury will stop printing 100 dollar bills, using cash is becoming obsolete Bitcoin is growing as an alternative currency. What is coming, and possibly quicker than thought if the global economies sink back into recession, is the Fedcoin. No cash, everything on computers. Payrolls, spending, bill paying by use of cell phones and computers. It is Orwellian, when it happens the government will know everything a consumer does, most concerning, the government will be able to directly control what you buy and what you cannot buy.

After we get Weekly Claims (not presently a market mover) tomorrow, the most important data comes out – January housing starts and permits, along with the Philadelphia Fed’s Feb business outlook survey.

Stocks continue to march on again today – I cannot wrap my arms around the present enthusiasm, but take it as present reality. If there are any significant bears out there they are still in winter hibernation. Not only in the US but around the world as if the Trump victory will improve the world. The EU is crumbling under the headlines.  The UK out, in France if Marine Le Pen wins France will leave (she presently is a long shot, but so too was the Brexit). An exit by France will be the first stage of failure of the EU experiment the last 26 years.

In summary, bond markets lost further ground today, and rates are approaching December's highs.  Our recent range of 2.4-2.5% on treasuries is in jeopardy, and the trend is NOT our friend.  I favor locking early, particularly if closing within 30 days.