Mortgage rates are rising – Energy prices are high – Inflation coming?
Mortgage rates are rising as the markets believe the Federal Reserve will raise the interest rates higher. Rates on 30 year mortgages hit a high of 6.67%. This is the highest rate in the last four years.
The housing market has been slowing down after five tremendous years. The rising mortgage rates greatly affect the ebb and flow of the nations housing inventory. Some analysts believe that sales will decline 10% decrease in sales as the interest rates rise.
In the Philadelphia area, economic conditions improved. Business activity is improving also. Manufacturing is improving at a slower pace. Retail Sales increased from April to May and is expected to continue unless higher gas prices slow the overall consumer spending. Lending for both consumers and commercial accounts rose in May.
The Fed Chief, Ben Bernanke, stated that consumer prices are racing forward at an annual rate of 5.2%. The rise for all of 2005 was 3.4%. High energy costs affect the economy in so many ways. The economy is flexible and seems to have absorbed shocks of the past years.
Greenspan was such an influence on markets that his replacement must create his own reputation for effective and decisiveness. I am hoping the flexibility of the market continues and we avoid economic slowdown and inflation.