Our Economy Overview

Weekly Economic Summary –


June 23, 2011
Last week in review

(June 13 – 17, 2011


The volatility in Greece, as the country continues to search for some sort of bailout to meet near-term financing needs, has caused some flight to safety buying of U.S. dollar denominated securities like treasuries and mortgage backed securities, upon which home loan rates are based. This helped bonds and home loan rates last week, which was a good thing, since signs of inflation also heated up last week and bonds and home loan rates would have likely worsened on that inflation news.



Remember, inflation is the arch enemy of bonds and home loan rates because inflation erodes the value of the fixed return provided by a bond, which causes home loan rates to rise. And last week, both the Producer Price Index (which measures inflation at the wholesale level) and the Consumer Price Index (CPI) (which measures inflation at the consumer level) were both reported higher than expected, with the core CPI rising by 0.3%, which was the largest monthly increase in three years. While the Fed continues to say that the increase in inflation is transitory (i.e. short in duration, temporary or not persistent), more signs of inflation in the coming weeks and months could hinder bonds and home loan rates from further improvements.