Rate update: Rates simply ran out of crises

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By G. Steven Bray

We were hoping last week’s inflation report would keep a lid on interest rates. Unfortunately, that lid didn’t hold, and we’re looking at the highest mortgage rates in about 5 years. Granted, rates still are historically low, but for some folks “rates in the 4’s” are now in the rear-view mirror.

So, what’s going on? We’re looking at a variety of factors.

– Even though last week’s inflation report was tame, inflation still is elevated compared to last year and supports the idea of additional Fed rate hikes.

– The Fed will again reduce its bond buying on Oct 1st as part of its efforts to shrink its balance sheet.

– Economic activity and consumer confidence have reached short-term highs, and a healthy economy tends to put pressure on rates.

– Wages finally seem to be rising, and rising wages typically filter through to higher consumer inflation and higher economic growth.

– Government borrowing to fund deficit spending means a greater supply of bonds as the Fed is tapering its demand.

Against this backdrop, we’ve had a series of mini-crises this year that kept investors on edge. Trade fears probably have been the most pervasive, but even the fear of with a trade war seems to be dissipating. The apocalyptic predictions didn’t pan out, and investors seem to be viewing the posturing as negotiating tactics rather than a real threat to the global economy.

Other threats still exist, and I think those will keeps rates from rising too much too fast. However, for now, if rates take a temporary dip, it probably makes sense to lock.