Rates have been on a remarkably quiet winning streak over the past month, with the worst day seeing a 0.06% increase for a 30-year prime fixed loan and the average day seeing a 0.02% decline. That streak received its first blow today following a higher-than-expected rise in the Consumer Price Index (CPI), a key report on inflation.
Even though the Fed’s official inflation target is based on personal consumption expenditures (PCE), we will still wait 2 weeks for this report to be released for October. The CPI (the one we have today) always comes out earlier in the month, and because much of the data flows to the more robust PCE data set, the CPI reliably produces more volatility for the bond/rates market.
Today’s report shows widespread pricing pressures, with only a small handful of categories seeing improvements. Naturally, the categories most closely linked to rising fuel prices were the worst, but many non-fuel categories were surprisingly high.
Given that the Fed has explicitly stated that it is focusing more on the inflation component of its job description at the moment (as opposed to the “full employment” component), we expected today’s data to carry much more weight than last week’s jobs report. The reaction was logical and immediate. When the dust settled, the average 30-year fixed rate in the first tier was 0.12% higher overnight, at 7.30%.
While this was the largest one-day increase in over a month, it was still a bit below the levels of over 7.6% seen in early October.
Gn bussni
