Markets did not like today’s Consumer Price Index figures which came in higher than expected. However, the downbeat mood this morning is not enough to reverse the recent downward trend in mortgage rates.
The chart at right shows CPI over the past two years and the band collars the Fed’s articulated “comfort zone” for inflation.
The far left of the chart represents the few months before the Federal Reserve began raising the Fed Funds Rate from 1.000%.
The second highest peak represents where the Fed made its last FFR increase to 5.250%.
The Fed has not changed the FFR since June 2006 while it waits to see the impacts of its prior rate hikes. According to the chart, the hikes helped to bring CPI back to a comfortable range and today’s increase still registered within tolerance levels.
This is one reason why the surprise upside to CPI is not causing damage to mortgage rate shoppers.
Consumer Prices Jump 0.2% On Higher Food, Medical Costs
Wall Street Journal Online, February 21, 2007 9:37 a.m.