Volatility in the market has continued to shift money away from stocks to safer assets such as bonds and then reverse the trend taking money out of safer assets and buying stocks. We have seen some upward pressure from inflation as the Consumer Price Index (CPI) came in 1.4% higher than a year ago and was the highest since October 2014. As inflation pressure continues to inch slowly higher it influences mortgage rates to follow suit. While a stronger dollar and extremely low oil prices have countered some of the inflation, the upward surprise was not great news for those seeking to keep interest rates lower. The key indicator going forward may end up being the CPI as that will require the Fed to take a long look at the indication of possibly slowing down future rate increases even if the world economy struggles to right the ship.
As all of this is taking place Janet Yellen posed the question if negative interest rates were even within the Fed’s power to impose if things did head south. She did come back later to clarify that they do have the power to impose negative rates which some countries have recently imposed. We have to remember that the Fed has had the spigot wide open for several years with no pull back on monetary policy, essentially limiting what they can do to float the boat if the economy starts to spin downward. Coming up, we have Existing Home Sales, Durable Orders, Core PCE which is a key indicator of inflation for the Fed, and the second estimate of fourth quarter GDP will come out Friday.