The Core Personal Consumption Expenditures (PCE) Index rose by 1.8% in August versus a year ago. Core PCE measures price changes in consumer goods and services, excluding volatile food and energy components.
This is the third consecutive month that year-over-year Core PCE growth has come in under 2%, significant because the Fed considers 1-2% to be it’s target zone for inflation.
Inflation erodes the value of money and causes long-term interest rates to rise. Low inflation is like a ceiling for long-term interest rates.
Low inflation also gives the Fed a green light to lower short-term rates (Federal Funds Rate) to support economic growth, if necessary.
But low short-term rates increase consumer and business spending and can cause inflation to rise, and you know what that means, right? (See above)
The takeaway is that we should expect long-term mortgage rates in general to remain low, but move up and down in a range, as it normally does.
More worthwhile than watching rates all day long is to engage in some solid mortgage planning. Contact me if you’d like to see how improving your credit, optimizing your cash flow and taxes and selecting the right mortgage product at the right time can nicely improve your financial picture!
