With gas and food prices skyrocketing, and unemployment on the rise, the US Central Bank has begun to hint toward a rate hike sooner rather than later. The fear is that inflation will spiral out of control which, coupled with high unemployment, will signal stagflation.
Ben Bernanke spoke this morning, and stated that risks to a serious downturn in the economy have abated. With inflation projected to continue to rise in the coming months, Fed policy may shift to rate hikes to help offset the inflation risk. Fed committee member Fisher was quoted as saying that inflation is "unacceptable."
Inflation is the enemy of long term mortgage rates as increasing prices erodes the value of a long term security such as a mortgage backed bond. Mortgage rates tend to go up in the face of inflation and we have seen this over the past 2 days, as 30 year fixed rates have risen .25-.5% with all lenders!
This could be the end of cheap mortgage money, at least for now.
