Rate Update December 16, 2008

Mortgage rates are modestly better this morning.

The Fed will release its decision on short-term interest rates later today.  It is widely expected that they will cut short term rates by .50%.  In and of itself their cutting rates WILL NOT directly impact mortgage rates.  In fact, by cutting rates to less than 1.0% the Fed will put pressure on the US Dollar which could create inflationary pressure.

Speaking of inflation, this morning’s Consumer Price Index showed that consumer prices fell off a cliff in November.  In fact, the 1.7% drop in prices is the highest declines since the Labor Department began compiling records back in 1947.  Even when you exclude volatile food and energy prices inflation pressures have eased considerably.

That said, the Fed is probably more concerned about deflation rather than inflation at this point.  Deflationary concerns is partially why rates are so low now.  However, a deflationary environment WOULD NOT be positive for the overall economy.

Current outlook: neutral ahead of tomorrow’s jobs report