Rate Update December 15, 2009

Mortgage rates are higher this morning.

This morning’s Producer Price Index (PPI) Report showed prices at the wholesale level of the economy increased by much more than analysts had expected last month.  Inflation is the primary factor that drives mortgage rates so this news is not welcomed by the mortgage industry.  Upon the release of this data mortgage-backed bonds jerked lower pushing rates higher.

Tomorrow is another big day in terms of inflation data.  In the morning the markets will get the Consumer Price Index (CPI) from the Labor Department.  Should price changes at the retail level of the economy be reported in line with expectations we should see rates move back lower.  However, if this report shows that retail prices increased by more than expected it would put even greater pressure on rates.

The Fed also concludes a two-day monetary policy meeting tomorrow.  Their post-policy statement always has the ability to shift the markets.

For now we’re going to recommend a cautiously floating position as we think this morning’s PPI report is a statistical outlier.

Current outlook: cautiously floating