Fed Chairman Ben Bernanke carried the biggest stick in the mortgage rate market last week. His “Goldilocks” testimony before the Senate Banking Committee spoke of favorable growth and subsiding inflation.
Markets expected a harsher tone from Bearded Ben and that is why rates dropped post-testimony — the expectation diminished that the Fed will raise the Fed Funds Rate in 2007.
This week, the Consumer Price Index (CPI) is expected to show a slowing down as well. CPI measures inflation on a consumer level, evaluating costs of domestically- and foreign-produced goods for American consumers.
An elevated CPI is viewed as inflationary because when everyday items are more expensive, the relative value of a dollar is lower.
CPI is important as a broad gauge, but not as important as the more predictive, more stable sub-component of CPI called Core CPI. Core CPI is the same as CPI except that it ignores the highly volatile prices of food and energy.
Core CPI is expected to register a 0.2% increase. If the actual figure comes in lower (and supports Bernanke’s testimony), expect mortgage rates to fall further.