Low Inflation, Moderate Growth

While it was rough last week for the stock market, mortgage markets were very quiet. The economic data contained no major surprises, and there was little change in mortgage rates during the week.

The economic news last week showed that inflation levels remain low. The most closely watched US inflation indicator revealed that March Core CPI inflation was just 1.9% higher than one year ago. In addition, China, the world's second largest economy, reported lower than expected first quarter GDP growth. China is an enormous source of demand for commodities, and gold, oil, and copper prices dropped sharply due to slowing growth in China. Declining commodity prices help keep inflation in check. Low inflation is always good news for mortgage rates. It is even more important right now because the Fed has announced that its MBS and Treasury purchase program will be scaled back or concluded if inflation is seen to be rising too rapidly. The Fed's program has been instrumental in keeping mortgage rates low.

The economic growth rate in the US is also very favorable for mortgage rates right now. Most signs point to steady growth at a modest rate this year. The Fed's Beige Book, released this week, reported moderate economic growth in most regions through early April. The Fed's Lacker stated that he sees the economy growing at a 2.0% annual rate this year, which is similar to the consensus view of Wall Street economists. Modest economic growth with low inflation is the sweet spot for mortgage rates.