Weekly Market Report for the week ending June 19th

Tame Inflation vs. Economic Growth

Tame inflation data helped mortgage rates move lower early in the week, but stronger than expected economic data turned them higher later in the week, leaving mortgage rates nearly unchanged from last week. The announcement of larger than expected Treasury auctions next week ($104 billion) also was negative for mortgage rates.

This week's Consumer Price Index (CPI) and Producer Price Index (PPI) data indicated that inflation is not a concern in the short-term. A significant decline in energy prices from one year ago resulted in a very low overall annual inflation rate. Even Core CPI, which excludes food and energy, rose at a tame 1.8% annual rate. However, the benefits from the favorable inflation news was offset by stronger than expected economic growth data. In particular, the Philadelphia Fed manufacturing index showed surprising improvement. In addition, May Housing Starts rose 17% from April, while Building Permits, a leading indicator of future activity, also exceeded expectations. This week's data sets the stage for next week's Fed meeting. With inflation currently low but at risk of increasing if the economy continues to improve, the Fed may be reluctant to introduce more stimulus, opting instead to wait and see how the economy performs.

President Obama this week proposed broad new rules for regulating the financial system. One proposal under the Obama plan would create a consumer protection agency which would have the authority to set rules for the mortgage industry. The details may not be known for quite a while, as the plan now faces a lengthy debate in Congress