Fed Chief Forecasts Moderating Inflation

This is part of an email I received from one of my lenders. Hope you find it informative.....

Mortgage Time


Fed Chief Forecasts Moderating Inflation

Mortgage markets showed little reaction to another extremely high inflation reading this week, and mortgage rates ended the week essentially unchanged. The July Producer Price Index (PPI) rose at a 9.8% annual rate, which was the highest level since 1981. The core rate, excluding food and energy, also far exceeded expectations, rising at a 3.5% annual rate. Similar to last week's Consumer Price Index report, investors gave little weight to the data, since oil prices have fallen about 20% in recent weeks. In a speech on Friday, Fed Chief Bernanke reinforced this outlook, suggesting that a stronger dollar and lower oil prices should help bring down inflation.

Fannie Mae and Freddie Mac dominated the headlines this week, and expectations increased that the two firms will receive a government bailout. Together, they own or guarantee roughly half of the $12 trillion in outstanding US mortgages, so they are vital to the mortgage market. Government officials have repeatedly stated that an infusion of capital, if necessary, would be accompanied by reforms. At this point, there is only speculation as to what those reforms would be and what effect they would have on the operations of the two companies. While the stock prices of Fannie and Freddie were extremely volatile during the week, the news had little impact on mortgage rates.

In the housing market, July Housing Starts showed the expected declines. Building Permits, a leading indicator, also fell moderately. With record levels of homes on the market, a reduction in the number of new homes being added to the market is a key for housing prices to begin to move higher.