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On Annual Basis CPI Hits 6% In February

Mar 14, 2023
Interest rates
Senior Editor

Experts ponder what happens when Fed meets next week to set interest rates.

News of the slight 0.4% increase in the Consumer Price Index (CPI) announced today combined with large banks shutting down has mortgage industry experts wondering: what comes next? Will these financial crises have lasting impacts on rates?

The index for shelter was the largest contributor to the monthly all items increase, accounting for over 70% of the increase, with the indexes for food, recreation, and household furnishings and operations also contributing. The CPI for All Urban Consumers (CPI-U), according to the Bureau of Labor Statistics, rose 0.4% in February on a seasonally adjusted basis, after increasing 0.5% in January. Over the last 12 months, the all items index increased 6% before seasonal adjustment.

Taylor Stork, chief operating officer for Developers Mortgage Company in New Jersey and the president of the Community Home Lenders of America, says the closures of Silicon Valley Bank and Signature Bank will have a positive impact on inflation for the simple reason that there will be less capital available. Inflation, he explained, is caused when there’s too much money chasing too few goods, which is being driven by supply issues caused by COVID.

“The hope is that the impacts of the banks are net positive for the economy in general. It’s a signal that the Fed's quantitative tightening worked and we will see what happens next,” Stork said.

Slowdowns in inflation could impact how the Federal Open Market Committee acts when it meets next week. There’s no clear consensus, at this point, on how the Fed might react.

Connel Fullenkamp, Duke University economics professor, told NMP’s Mike Savino that the Fed should stick with a 50-basis point hike, but thinks it's possible they give into pressure and do nothing at all. “I think the Fed should stick to its guns,” he said, adding that drops in mortgage rates this week were caused by investors seeking safe havens in bonds. 

“This is a disturbance, this is a moment of — certainly I would say panic in the startup scene in California,” Fullenkamp said before adding rates will go back up, maybe not as high as before. He expects the increase will come after a month without anymore “big victims or collateral damage."

One thing to keep in mind, Stork added, is not to be overly concerned with shelter driving a significant increase in the CPI. He described those numbers as built on averages and not truly reflective of homeownership costs based on the sheer volume of mortgage refinancing when rates were historically low.

Stork said, as always, 10-year treasuries will have the most immediate impact on mortgage rates. Investors leery of the stock market’s reaction to Silicon Valley shutting down moved their money to bonds, which dropped the yield rate. “Overnight we gained ground on 10-year-treasury notes and saw improvement of rates on the rate sheets,” Stork said. “So far the interest rate changes have been good. Hopefully that continues.”

About the author
Senior Editor
Keith Griffin is a senior editor at NMP.
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