Mortgage Market News for the week ending April 8, 2011

Inflation Concerns Push Rates Higher

With little other economic news, inflation concerns weighed on mortgage rates this week. Despite rising commodity prices, Fed officials appear to be in no rush to tighten monetary policy. Investors, worried about the risk of higher inflation, pushed mortgage rates a little higher.

While the ECB (European Central Bank) and China raised rates this week to fight inflation, US Fed officials continued to downplay the risks. According to the Fed Minutes released this week and in recent statements, the majority of Fed officials maintain the view that higher commodity prices are unlikely to raise future inflation expectations. These officials expect the impact to be "transitory" and "muted". To support the economic recovery, they believe that the Fed should move slowly in removing monetary stimulus. The more hawkish minority at the Fed is gaining support, however, and several Fed officials have suggested that the Fed may need to tighten monetary policy before the end of the year. In light of the Fed's debate, investors will be closely watching next week's important inflation reports.

Even with higher energy prices, consumers continued to spend freely on other items last month. The March sales figures from about two dozen large retail chain stores released on Thursday were stronger than expected. Consumer spending accounts for about 70% of economic activity, so this data was encouraging news for the economy.

     Also Notable:

• Continuing Jobless Claims fell to the lowest level since October 2008
• The sovereign debt of Portugal was downgraded again
• Oil prices reached a 30-month high above $110 per barrel
• The Treasury will auction $66 billion in 3-yr, 10-yr, and 30-yr securities next week

Week Ahead The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Thursday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Friday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Retail Sales will be released on Wednesday. Industrial Production, another important indicator of economic growth, is scheduled for Friday. Import Prices, the Trade Balance, Empire State, Consumer Sentiment, and the Fed's Beige Book will round out a busy week. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Investors also will be watching to see if Congress reaches an agreement on the debt ceiling to avoid a shutdown.