Fed Policy Could Be Wrong on Inflation

Is the Fed's model on measuring inflation wrong? Outdated? The answer is Yes according to top economic forecasters Michelle Girard and Omair Sharif of RBS Securities.

I thought I would share this very intersting article about inflation and the model the Fed is using. I am by no means an economist but I have heard many times that there is no inflation. I ask myself how could that be when the cost of everything is going up. In some areas....skyrocketing. After reading this article on how the Fed determins inflation it is very clear how they make there claim. The model says that there cannot be inflation unless wages are rising in tandem with costs of goods and services. With unemployment at record highs (and expected to remain high for quite some time) we all know that wages are definatley NOT rising. For that reason they say there is no inflation. Please, I dont know about you but my pocketbook can definatley feel it.

What does all this mean to you and me? The Fed has implemented many tools to keep interest rates low in an effort to fule both the econpmy and the housing market. If inflation is evident-they will be forced to begin raising the prime rate to offset. This means mortgage rates will rise sharply. If the FED is wrong and inflation exists and is "sneaking up" on them, we could see mortgage rates spike up which in my opinion would have a negative imapct on a crippled housing market. If you have been considering taking advantage of these low rates it may be best to act sooner rather than later.

Read Article Here

Keith Stewart
773-529-7000

Interest Rates Falling on Jobless Claims Surge

The recent news reported that the number of people who filed initial requests for jobless benefits surged by 43,000 to a seasonally adjusted 474,000 in the week ended April 30, the Labor Department reported.

Economists surveyed had expected claims to decline to 412,000. Claims in the prior week were revised up slightly to 431,000.

This is good news for mortgage rates which have pulled back again over the last few days. It may not be too late after all to refinance and save money.

Call Today if you would like to discuss your options. 773-529-7000

Fed Hikes 2011 Inflation View and Cuts GDP Outlook

WASHINGTON (MarketWatch) -- The Federal Reserve hiked its forecast for inflation and cut its economic growth view, though the central bank's board members and presidents have become more optimistic on the jobless rate. The Fed now sees the U.S. economy growing between 3.1% and 3.3% this year, down from a prior projection of 3.4% to 3.9% but still above Wall Street economist views around 2.9%. On inflation, they now see the price index for personal consumption expenditure growing between 2.1% and 2.8% this year, compared to the view in January of 1.3% to 1.7% growth. Some but not much of the PCE increase has filtered into core inflation, which excludes food and energy prices, which is now seen growing between 1.3% and 1.6%, vs. an earlier view of 1% to 1.3%. The unemployment rate however is now seen falling to a range of 8.4% and 8.7%, against an earlier estimate of 8.8% to 9%. The 2012 estimates aren't changed that much, though core PCE inflation is now seen ranging between 1.3% and 1.8%, up from 1% to 1.5%. The U.S. economy is seen growing between 3.5% and 4.2% in 2012 and between 3.5% and 4.3% in 2013.

Spring Purchase Market Update

Its very exciting to be coming into another spring purchase market. As the weather get warmer I am seeing a considerable amount of increased activity. I am hopful we will have a stronger purchase market this year than last.