Daily Market Update 4/18/08

Mortgage rates continued their upward trend Friday morning as stocks rallied. The Dow Jones Industrial Average was up over 200 points, more than 500 for the week. Two factors have weighed heavily on interest rates in recent days: inflationary concerns and investor sentiment. Tuesday’s release of the Producer Price Index showing the second largest monthly increase in 33 years, Wednesday’s release of the Consumer Price Index providing further evidence of inflation, and hawkish comments by members of the Board of Governors of the Federal Reserve all played a role. Adding to the upward pressure on rates was a shift in investor sentiment toward riskier assets. Investors are more comfortable that the worst of the credit crisis has passed, resulting in more funds being directed into stocks and away from bonds and mortgage-backed securities. This combination of events has pushed mortgage rates about 1/2% higher for the week. If, in fact, the worst is behind us and the Federal Reserve is able to stop lowering short term interest rates and focus on inflation, the US Dollar will likely strengthen against foreign currencies, easing oil prices and ultimately paving the way for lower long term fixed rates in coming months.

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