As we find ourselves in the second half of June, Orion’s AEs continue to offer some fine products at a very good price for our valued broker clients. And we know that you like knowing what is going on with our economy, since that can move mortgage rates. We’ll tell you right upfront: pandemic developments still overrule weekly and monthly economic news, and will as we move through the summer. The effects of the pandemic will continue to be felt for a long time, but Orion’s brokers should know that the economic news we receive is a way of taking the temperature of the recovery.
Consumers, armed with stimulus checks and a year of elevated savings, have pushed demand for finished good far beyond what the current global supply chain is able to meet. As anyone who has taken an economic course will tell you, when demand outpaces supply the result is inflation. Consumer prices have been increasing. In fact, April and May Consumer Price Index figures showed a nice increase (April’s increased more than it has since 1981!). We have seen for the last few months that producer prices have been rising and April’s report confirms that they have been able to pass on those higher costs to consumers.
Additionally, labor challenges are adding to businesses’ price pressures from raw goods by putting upwards pressure on wages. Outside of autos, gas, building materials and food services, demand for goods moderated in April as some consumers shifted spending back to services.
We learned that Q1 Gross Domestic Product showed consumer spending rose faster than previously thought. The revised report also showed that spending was higher on big-ticket items such as cars and trucks as well as household appliances. Not surprisingly, higher demand has led to increased prices as supplies remain low and production costs have risen.
The Federal Reserve Open Market Committee, which met last week, maintains that the elevated inflation numbers we're now seeing are transitory and will subside as we move through the summer. For the moment, the market is following the Fed's lead with rates staying low and no expectations for a change to the fed funds rate this year.
For now, in the second half of June, the Fed, through the operations of its Open Market Committee, is maintaining its stance: it expects current inflation levels to moderate and to keep its supportive monetary policy in place through the end of the year. Does that mean steady rates for Orion’s brokers? Not necessarily. The speed of the economic recovery will truly determine mortgage rates.