Inflation and interest rates hit home

It makes sense to focus on the Federal Reserve’s favorite inflation gauge in the coming week. After all, the central bank’s interest rate setting group meets in three weeks. It is almost certain that the committee will increase its short-term borrowing rate for the first time since the start of the COVID-19 pandemic.

The rate hike is expected to be the first of several this year as the agency focuses on tackling inflation.

Thus, consumer spending price data due Friday will shape investors’ expectations ahead of the Fed’s rate decision next month. Will central bankers ease their rate hike and raise them by just a quarter of a percentage point? Or will the Fed want to send a strong signal that it has the courage to resist the risk of disrupting the markets and the economy in its efforts to eliminate high inflation from the economy and start with a rise in rate of half a percentage point?

This is why the PCE report is important.

If investors want to gauge how people are reacting to higher interest rates and the impact of inflation on the biggest investment for most Americans, they should look at housing market data in the week ahead. .

The Mortgage Bankers Association releases data on new home loans and home refinance applications weekly. Data rarely moves markets. Yet it is a harbinger of consumer confidence, the influence of inflation and the price of borrowed money.

Not surprisingly, market interest rates rose before the Fed likely did the same next month. It’s also no surprise that home loan rates have gone up and fewer people are looking to borrow.

Mortgage applications from homebuyers have fallen more than 10% in the past two weeks. Mortgage refinance applications fell nearly 16%. This drop in borrowing demand could translate into a slowdown in the housing market this spring.

Mortgage rates are at their highest level since 2019, but loan sizes continue to increase thanks to very few homes for sale, helping to support rising prices and rapidly rising construction costs thanks to to inflation.

Rising interest rates and inflation are hitting just about every corner of the housing market – from mortgages to renovations to rents – making it worth watching for borrowing demand in the weeks ahead .

Tom Hudson

If investors want to gauge how people are reacting to higher interest rates and the impact of inflation on the biggest investment for most Americans, they should look at housing market data in the week ahead. .

Financial journalist Tom Hudson hosts “The Sunshine Economy” on WLRN-FM in Miami, where he is vice president of news. He is the former co-anchor and editor of “Nightly Business Report” on public television. Follow him on Twitter @HudsonsView.

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