Rates moved up slightly in the last couple of weeks amid much turbulence due to the election and the Fed meeting. There was a relief rally in stocks after the election and the 10 year Treasury bond moved up in yield to 3.22% before ending the week at 3.19%. The Producer Price Index Core rate was up .6% last month, with the year over year figure at 2.6%. The PPI is not the metric that is used by the Fed to determine monetary policy, but it is often a leading indicator of the CPI and PCE, for which data will be released next week.
The global economy and inflation are at the top of market concerns. While on the surface the US economy is healthy and inflation appears to be picking up, there are global pressures that make the future very uncertain. Among these concerns is falling oil demand/prices, which portend weaker global economic growth and reduced inflation. The US/China trade war has already had a huge impact on the China stock market and economy in general. While China has shown subtle signs of acceding to US demands, the Trump administration is maintaining and increasing the pressure on Beijing, apparently holding out for full capitulation, something the Chinese government is unlikely to go along with.
The Fed is determined to keep inflation in check. That, along with providing conditions that are supportive of stable economic growth, is the Fed’s mission. So, the first set of rate increases was warranted following the lengthy period of accommodative monetary policy. Now that there are warning signs of economic weakness, as described above, it would appear to be the time for the Fed to back off of the notion of continuously raising rates later this year and in 2019 until the economic picture is clearer. The US housing sector, not long ago the strongest US economic sector, is now among the weakest. Higher mortgage rates will not turn this trend around.
The Corelogic data on home price appreciation showed a 5.6% increase from September to September (in June this figure was 7.1%). So, we are definitely seeing a slowing of housing demand and prices, at least partially attributable to higher mortgage rates.