Rates Increase Due to Growth Expectations from Tax Cuts

Mortgage interest rates increased slightly this past week on expectations that tax cuts will increase wages and consumer spending potentially leading to higher inflation. The December Consumer Price Index (CPI) was up 0.1%, as expected, and up 2.1% year over year. December Core CPI, excluding the food and energy components, was up 0.3% and year over year it was up 1.8%. The December Producer Price Index (PPI), a measure of wholesale prices, was down 0.1% but up 2.6% year over year. December Core PPI was also down 0.1% but up 2.3% year over year. December Import Prices were up 3.0% year over year and Export prices were up 2.6% year over year. November Consumer Credit was also up substantially. The general belief is that GDP will increase by 3.0% in 2018. With the recent increase in rates, the 10 Year Treasury Note auction this past week was the strongest since June of 2016 and the 30 Year Treasury Bond auction was the strongest since December of 2014.

The Dow Jones Industrial Average is currently at 25,771, up almost 500 points on the week. The crude oil spot price is currently at $63.54 per barrel, up over $2 per barrel on the week. The Dollar weakened versus the Euro and Yen on the week.

Next week look toward Tuesday’s Empire State Manufacturing Survey, Wednesday’s Industrial Production and Housing Market Index, Thursday’s Housing Starts, Jobless Claims, and Philadelphia Fed Business Outlook Survey, and Friday’s Consumer Sentiment Index as potential market moving events. U.S. markets are closed on Monday for Martin Luther King Jr. Day.