The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in September before seasonal adjustment the Bureau of Labor Statistics of the U. S. Department of Labor reported yesterday. The CPI-U excluding food and energy advanced at a 2.5 percent SAAR in the third quarter following increases at rates of 2.3 percent in each of the first two quarters of 2007. The Fed likes to see inflation over between the 1%-2% range but its favorite measure of inflation is the Personal Consumption Expenditures index or PCE. PCE was reported last week at 1.9% Seasonally Adjusted Annual Rate (SAAR) right where the Fed wants to see it.
On top of that initial jobless claims came in at 337,000 well above expectations of 318,000 and the highest weekly total in seven weeks. This eases the threat of wage-based inflation and is positive news for mortgage bonds. The FNMA 6.0% bond jumped significantly to close the day up 22bps at $100.53.
Bonds have made an impressive 67bps move higher after bouncing off of the 50-day moving average on Monday. This has been enough to generate an improvement of about.25% in 30-year fixed mortgages for the week. Now we’re smack in the middle of a range of resistance between $100.44 and $100.59. Bonds could go either way based on positive or negative news.
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