Mortgage rates picked up last week ever so slightly. According to Freddie Mac’s weekly mortgage survey, the 30 year rate inched up from 4.10% to 4.12%. The 15 year rate matched the increase from 3.24% to 3.26% while the 1-Yr ARM climbed a bit higher to 2.45% from 2.40%. For the past month, the 30 year average rate has been at or below 4.12%. Rates one year ago were 4.57% and 3.59% for the 30 and 15 year respectively.
On the economic front the biggest surprise was the Retail Sales figure. For August, retail sales increased by 0.6%, much higher than what economists had expected. Consumer sentiment was also shown to be healthier. Yet as we’ve seen so far this year, the “good news-bad news” paradigm as it relates to stocks and bonds has been somewhat quirky. Instead of looking at signs of economic growth as a signal for investors to return to stocks, investors see a better economy as a harbinger of higher rates. It’s curious that any Fed increase, when it comes, will most likely be about 0.25% on the Fed Funds and Discount Rate. Hardly a shock to the economy but as our economy has functioned in a near-zero rate environment investors aren’t sure how higher rates will hurt prospects for further growth.
The Fed will get a reading on inflation this week as both the Consumer Price Index and Producer Price Index which measures inflation at retail and wholesale levels. The Fed is also scheduled for another round of meetings along with the announcement of a reduction by $10 billion in Fed purchases of Treasuries and mortgage bonds, but this is expected. As QEIII finally comes to an end next month rates might get more volatile than they have been as investors finally get to see what the economy looks like when the Fed stops printing money.