Indicators Reveal that Inflation May Push Loan Rates Up

by Tom 8. April 2011 16:08

ScalesA few weeks ago our National Pricing indicator report indicated that long-term CDs, especially five-year CDs, are slowly on the rise. The trend is sufficiently widespread that it could signal inflation is looming.

This week, other indicators also pointed to inflation on the horizon. The benchmark for 30-year fixed-rate mortgages rose 7 basis points to 5.08 percent. Four weeks ago it stood at 5.04 percent. The changes aren’t major and mortgages continue to hover around 5 percent, but they have been creeping upward and may push some buyers out of the market if they exceed 6 percent.

Some industry analysts fear that a more significant rate hike may be on the way. The Federal Reserve has been holding the key interest rate to near zero since 2008, but if the rate rises mortgage rates will follow. Fed Chairman Ben Bernanke continues to downplay inflation predictions, stating that commodity-driven inflation is "transitory" and will stabilize soon. However, a quote in a recent report from Bankrate.com:

“The Fed is "in a bit of a denial when it comes to inflation, but when you look at gas and food prices, it's clear that it's there," said Brett Sinnott, director of secondary marketing at CMG Mortgage in San Ramon, Calif. "When there is too much inflation you can't keep rates at zero."

Members of the Fed are expected to continue to argue about raising interest rates by year-end to combat inflation, or keeping rates low to support the struggling housing market. The minutes from the latest Federal Reserve meeting show that concern over increases in energy and food processes will lead to inflation.

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APY | Banking Trends | In The News | Loans


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