This morning, the Federal Reserve Bank’s Loretta Mester (voter, hawk) says the Fed could raise rates more rapidly if the U.S. economy grows faster than expected, though it could go slower if inflation weakens. Ms. Mester went on to say that she doesn’t see inflation picking up sharply this year. The Fed’s favorite inflation gauge, the annual Core PCE, is at 1.9%, not far off the Fed’s target of 2%. Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.

The National Bureau of Economic Research (NBER) recently reported that the current economic expansion in the U.S. is in a tie for the second longest in history dating back to June 2009. In addition, the number of consecutive months of labor market gains is the longest ever as of April. The NBER went on to say that the 3.9% Unemployment Rate recorded in April was the lowest since late 2000. The NBER also reported that the number of job openings hit 6.6 million in March, the highest since the Labor Department started tracking the number in December 2000.

Gas prices at the pumps continued to rise to start the week as the summer driving season gets set to kick off in a few weeks. In addition, the recent announcement from the White House to withdraw from Iranian nuclear deal had a hand in driving up oil prices. Motor Club AAA reports that the headlines from Washington along with the switchover to summer blend gasoline and growing global demand are also factors fueling the rise in gas prices. The national average price for a regular gallon of gasoline is at $2.87, up 6 cents in the latest week and up 53 cents from a year ago.

Consumer prices cooled a bit in April after spiking early in the year, helping to ease rising inflation fears. The numbers revealed an uptick in energy and food prices which was offset by a decline in demand for used cars and trucks. The Bureau of Labor Statistics reports that the headline Consumer Price Index (CPI) rose 0.2% in April, just below the 0.3% expected and still down from the 2018 high of 0.5% recorded in January.

The so-called Core CPI, which strips out volatile food and energy, rose 0.1%, below the 0.2% expected. On a 12-month basis, CPI rose 2.5%, up from the 2.4% in March, while the Core rate increased 2.1%, unchanged from the March reading. The members of the Federal Reserve will be dissecting the data but it does regard the Core Personal Consumptions Expenditures (PCE) as its favorite inflation gauge. The annual Core PCE was last reported at 1.9%, right near the Fed’s 2% target.

Mortgage rates were steady in the latest week, and while they have risen in 2018, rates still remain historically attractive. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged this week at 4.55% with an average 0.5 point added on top. Freddie Mac says as we head into late spring, the demand for purchase credit remains rock solid, which should set us up for another robust summer home sales season. In addition, while this year’s higher rates, which are up 50 basis points from a year ago, have put pressure on the budgets of some home shoppers, weak inventory levels are what’s keeping the housing market from a stronger sales pace.

A recent survey by First American Financial Corp. reveals that there is no housing affordability crisis. One of the reasons given in the survey is that while home prices have been increasing, so have incomes. The report went on to show that most states have reached their peak home price at 2007 levels, while incomes are much higher than they were in last decade.

U.S. Stocks are lower today as investors remain on edge about the U.S.-China trade talks coupled with less than impressive corporate earnings released this morning. Treasury Secretary Mnuchin is in Beijing today spearheading two days of trade talks between the two countries. The closely watched S&P 500 has fallen below a key technical level, which is ushering in more selling.

Mortgage rates edged slightly lower this week after three straight weeks where borrowing costs have risen, after being in an upward pattern since the year began. Freddie Mac reports that the 30-year fixed-rate mortgage fell three basis points to 4.55% with an average 0.5 in points and fees. Despite the higher rates this year, Freddie Mac reports that its data through April shows that first-time home buyers represent 46% of purchase loans, up from 43% over the same period a year ago.

The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) fell 0.1% in March, below the expected gain of 0.1%. Lower gas prices at the pumps are to blame for the first decline in 10 months. When stripping out volatile food and energy, the Core CPI was in line at 0.2%. On a year-over-year basis, CPI rose 2.4% while Core CPI rose 2.1%, both 12-month highs. The Consumer Price Index measures the average price level paid by urban consumers (80% of the population) for a fixed basket of goods and services.

Heightened tensions over Syria between Russia and the U.S. are giving Bond prices a modest boost so far this morning. President Trump tweeted that Russia should get ready for a missile strike on Syria after the chemical attack over the weekend. Several Russian officials have threatened to retaliate if the U.S. strikes. U.S. Stocks are lower on the headlines.

Mortgage rates declined slightly in the latest week after climbing since the beginning of 2018. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage with conforming loan balances ($453,100 or less) declined to 4.66% in the latest week from 4.69%. That rate carries at least an average 0.40 point added on top. Within the report it showed that both the refinance and purchase index fell 2%.

The February Consumer Price Index (CPI) came in at 0.2% last month, in line with estimates and down from the 0.5% previously recorded in January. Lower energy prices were the catalysts for the lower readings. When stripping out volatile food and energy, the more closely watched Core CPI was also in line at 0.2%, leaving the year-over-year Core unchanged at 1.8%. If inflation numbers remain tame, the Fed will be hard pressed to raise the short-term Fed Funds Rate four times in 2018. This doesn’t change next week, as it appears a Fed Funds Rate hike is a lock at the FOMC meeting.

Small business optimism continued to run near record highs in February due in part to lower taxes and decreased regulations. The National Federation of Independent Business Small Business Optimism Index rose to 107.6 last month as owners showed unprecedented confidence in the economy. “When small business owners have confidence and certainty in the economy, they’re able to hire more workers and invest in their business,” said NFIB President and CEO Juanita Duggan.

The shakeups at the White House continued today as Secretary of State Rex Tillerson is out with current CIA Director Mike Pompeo taking his place. Last week President Trump’s Chief Economic Adviser, Gary Cohn resigned with the leading candidate being economist Larry Kudlow from CNBC. It’s been said that Mr. Tillerson due to the failure to wield any significant influence in internal administration over issues surrounding North Korea and Russia.

The National Federation of Independent Businesses (NFIB) reports that the underlying strength in the economy can be seen in the critical small business sector. The Small Business Optimism Index rose two points to 106.9 in January and set a record with the number of small business owners saying now is a good time to expand. “Main Street is roaring,” said NFIB President and CEO Juanita Duggan. “Small business owners are not only reporting better profits, but they’re also ready to grow and expand. The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses.”

There are no economic reports due for release today. Tomorrow’s Consumer Price Index will be closely watched by the Fed for any signs of inflation due to the recent focus on rising prices and wages. The incoming economic reports are now very important to follow … especially inflation. In the latest Jobs Report, wages grew at the fastest pace since 2009, which could pressure inflation higher.

The recent plunge in the U.S. Stock markets doesn’t have members at the Federal Reserve scurrying to alleviate the situation. Cleveland Fed President Loretta Mester believes that the economy is safe and sound, and that it will work through recent fluctuations, which are far away from having an influence on the economic outlook. Ms. Mester went on to say that inflation should rise this year but not to a point that requires a quicker Fed reaction as it gradually begins to rise to the Fed’s target range.

Global Bond yields continue to rise due to several factors as the U.S. 10-year yield at the highs seen in January 2014. The Bank of England said it sees interest rates rising sooner and higher as the U.K. is boosted by global growth. Dallas Fed President Kaplan said the central bank will likely continue removing policy accommodation gradually and could hike rates three times this year. In addition, with Friday’s uptick in wage growth, inflation talk is now picking up steam

At present, the annualized Core PCE, the Fed’s favorite inflation gauge, is still at a low 1.5%, below the central bank’s target range of 2%. Chicago Fed President Evans feels rate hikes should be put on hold until midyear with just a hint of inflation in the economy. Low inflation and waiting to see the tax reform impact could put a few rate hikes on hold.

Mortgage rates edged higher in the latest week though they still remain just above all-time lows. Freddie Mac reports that the 30-year fixed-rate mortgage jumped 10 basis points to 4.32% with an average 0.5 in points and fees, up 33 basis points since the start of the year. Mortgage rates are now at the highs seen in April 2014. Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage.

CoreLogic reports that home prices nationwide, including distressed sales, rose 6.6% year over year in the month ended in December. On a month-over-month basis, prices increased 0.5% from November to December. CoreLogic reports that rising incomes and consumer confidence have increased the number of prospective buyers. The increase in potential buyers coupled with limited inventories of homes for sale on the market continues to drive prices higher. Looking ahead, prices are expected to cool a bit with a 4.3% gain from December 2017 to December 2018.

Foreclosure starts and completions have fallen to a 17-year low in 2017 as the economy and the housing markets continue to grow. Black Knight Financial reports that there were 649,000 foreclosure starts in 2017, which were the fewest since 2000. First-time foreclosure starts were 15% below 2016 levels and about half the annual average seen from 2000-2005. In addition, 2017 saw the lowest single-year total for foreclosure completions since the turn of the century.

U.S. Stock markets plunged yesterday with the Dow Jones Industrial Average shedding 1,175 points, its largest one day point loss in its 122-year history. The Dow had been up 40% since the presidential election in November 2016 so a correction was overdue. The fundamentals are still in pace for the U.S. economy. Economic growth continues while the job market continues to expand and consumer confidence is at multi-year highs.

The Bureau of Labor Statistics reported on Friday that U.S. employers added 200,000 new workers in January while November and December were revised lower by a total of 24,000. The big news within the report was a rise in annual wage growth, which surged 2.9% from January 2017 to January 2018, the biggest increase since June 2009. Wages have been stagnant but the unexpected rise is a key metric for the economy. The Unemployment Rate remained at 4.1%, the Labor Force Participation Rate was unchanged at 62.7%, while the U6 number (or total unemployed) edged higher to 8.2% from 8.1%. Overall, it was a solid report.

Consumer Sentiment beat expectations in January for the final monthly reading coming in at 95.7 versus the 95 expected and up from 94.4 in the early monthly reading. A booming Stock market and solid job growth were a few measures that kept the index above average historically. Conditions for purchasing homes fell to the lowest level in seven years due in part to low inventories. A spokesperson from the index said the tax cuts will increase discretionary spending.

With the Super Bowl airing on Sunday, here are a few facts: According to the Department of Agriculture, Super Bowl Sunday is America’s second largest food consumption day behind Thanksgiving. On the Monday after the game, it is expected that 1.5 million workers will call in sick. Americans may drink 325.5 million gallons of beer during the game. It’s estimated that the NFL collects around $620 million of revenue from this event, which is the highest in history for a one-day sporting event. Enjoy the game!

A low supply of homes for sale on the market continued to plague home buyers in December. The National Association of REALTORS® reports that Pending Home Sales in December rose 0.5% from November, which was just below the 0.6% expected. Year-over-year Pending Home Sales are up 0.5%. Sales slowed in all four major regions of the country. Lawrence Yun, NAR chief economist, says, “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices — especially at the lower end of the market.”

After two straight days of losses, Stocks are higher being buoyed by strong earnings reports and after President Trump delivered a mostly controversy-free State of the Union last night. The president called for a $1.5 billion infrastructure spending bill. U.S. Stocks are on track for their best January in decades. The closely watched S&P 500 is up 5.7%, its best January gain since 1997 fueled by positive economic data, strong earnings and the recent tax cuts.

Private employers added more new workers than expected in January as the job markets continue to grow. ADP Private Payrolls in January rose by 234,000, well above the 190,000 expected while December was revised lower to 242,000 from 250,000. Within the report it revealed that small businesses added 58,000 workers; medium size businesses 91,000; and large companies 85,000. Mark Zandi, chief economist of Moody’s Analytics, said, “The job market juggernaut marches on. Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”