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EMERGING LA - BLOG

Inflation Strengthens Case For Rate Hike

7/16/2018

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Two indicators of inflation this week showed rising wholesale and consumer prices, giving more credence to the likelihood the Federal Reserve will continue hiking interest rates. 

Wednesday’s report on consumer prices showed inflation over the last 12 months is up 2.4 percent, according to the consumer price index, a metric of prices on common consumer goods. Also this week investors received results of the March Producer Price Index and learned wholesale prices are now up 3 percent over the last 12 months. This is just the second time the rate has hit 3 percent since the government recalculated its index in 2013.

The takeaway from these two popular inflation metrics is a strong-as-ever sense that inflation is now humming at or slightly above the Federal Reserve’s target annual rate of 2 percent. Along with healthy employment numbers, this means bankers will be likely to increase interest rates in order to keep inflation in check and prevent the economy from overheating. 

Analysts now predict with about 85 percent certainty that the Federal Reserve will increase rates at its June meeting. That would be the second hike of the year. The Fed has estimated three rate increases this year, though some analysts are beginning to wonder if that could increase with continued inflation and economic growth.
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For mortgage professionals, the economic news this week suggests the recent rate trend will continue. Economic growth, inflation and a more hawkish Fed will continue to give reason to expect rising rates in 2018, even as market volatility, political unrest and trade fears keep a lid on things.

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