Last Week's Economic Retrospective:

The Fed decided last week to hold the Fed Funds Rate steady at 5.25%. Hiking rates helps to control inflation. The Fed target range is 1-2% but inflation has been measured between 2.5 - 3.0%. So why didn&8217;t the Fed hike rates since inflation is above its 2% target? The Fed may actually be exercising patience. It does take time for a rate hike to filter throughout the economy. A rate hike may take between 6-9 months to be felt. The Fed may be showing patient since their last hike on June 29th, not wanting to be overly aggressive, waiting to see if inflation will decline. So far, inflation has shown no sign of easing.

The Fed's favorite measure of inflation, the Personal Consumption Expenditure Index, will be released today, and will take special significance following last week's action. If inflation does not begin to move lower towards the Fed's target, expect more hikes. But last week's tame talk on the prospects of lower inflation and the slower economic growth outlook ahead gave Bonds a boost higher, and thus home loan rates were unchanged or improved by .125% last week.

This Week&8217;s Economic Forecast:

We should get some good insight on the health of the economy and the pace of inflation this week but this might also mean there is a good chance of added market volatility in both Stocks and Bonds. The Fed's patience may be tested today as the Personal Consumption Expenditure (PCE) Index will be released. Will this report show inflation is remaining persistent? If it does show inflationary pressures, the Fed will not have a chance to tweak rates until its next meeting. But if the PCE shows inflation trickling down towards the Fed's desired target, the current cycle of hikes may finally be over. That could help improve home loan rates, and add some punch to an already hot stock market