“Transitory” — defined as non-permanent or lasting a very short time — is the word Fed Chairman Jerome Powell used this week at the Fed Meeting to describe the current low inflation environment, meaning that inflation will likely pickup from this “temporary” low level.
The problem? Inflation has been relatively low for a decade and while the Fed called low inflation “transitory” many times in the past, it sure has been anything but transitory.
Nonetheless, both stocks and bonds didn’t like the “T” word, because if inflation does move higher from here, rates will move higher, and ultimately stocks would decline because they don’t like higher rates.
Just because inflation was low the last decade doesn’t mean it has to remain low. So what could make inflation rise from the “transitory” low level?
Wages are rising at the fastest pace in a decade, and unemployment is at 50-year lows. There are one million more job openings than there are available workers to fill them. And companies are firing people at the slowest rate in years. This is the strongest economy we have seen in quite a while – for many it’s the strongest in their lifetime. All of this, should it continue, could stoke higher inflation.
Bottom line — home loan rates held steady at one-year lows from week to week, despite ticking higher in response to the Fed Meeting. Now is a great time to purchase a home and take advantage of the strong economic backdrop and low rates.
After last week’s risk-filled events, this week slows down quite a bit as far as economic reports and major events are concerned. The upcoming week will feature the inflation-reading Consumer Price Index (CPI). As mentioned, inflation continues to run low and there should not be a spike higher from the CPI data.
Earnings season will just about come to an end in the upcoming week with most of the big-name companies having already reported. As of Thursday, 74.7% of the S&P 500 companies that reported have exceeded earnings estimates.
One thing is for certain, the Goldilocks economy lives on in the US. Low inflation, solid economic growth, low unemployment, strong retail sales and increased consumer spending along with rebounding consumer confidence will fuel home sales in the months ahead.
Reports to watch:
- Economic data doesn’t kick off until Thursday with Weekly Initial Jobless Claims along with wholesale inflation data from the Producer Price Index.
- On Friday, the closely watched inflation-reading Consumer Price Index will be released.