Morning Report: Inflation is back at the Fed's target

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	Last	Change
S&P Futures	2267.0	5.0
Eurostoxx Index	362.1	-0.3
Oil (WTI)	61.7	-0.8
US dollar index	94.5	0.5
10 Year Govt Bond Yield	2.38%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.08

Stocks are higher this morning as bank earnings roll in. Bonds and MBS are down ahead of the European Central Bank's first meeting, which is tomorrow. 

Mortgage applications rose 0.8% last week as purchases fell 5% and refis increased 7%. The change in MIP spurred refinance applications and the FHA's share of applications jumped. 

Homebuilder sentiment slipped in December, however it is still elevated. A tight housing market is buoying the sector, while labor shortages and regulations continue to be headwinds. 

The consumer price index increased 0.3% last month and is up 2.1% YOY. Ex-food and energy it was up 0.2% MOM and is up 2.2% YOY. While the CPI is not the preferred inflation index for the Fed (the Personal Consumption Expenditure Index is) it does show that inflation is back at the Fed's target range. Gasoline and shelter drove the increase. 

Note that rental inflation is beginning to moderate, especially at the top end. The overall rental index increased 3.4% this year, which was a deceleration from the 4% growth we saw the year before. That said, the lower price points are still exhibiting strong growth. There is still a wide geographic variation - from still torrid growth in the Northwest to negative in the South. Yet another data point to sell the first time homebuyer - on a 30 year fixed rate mortgage, your P&I payment isn't going to increase.

It looks like home price appreciation is moderating in Southern California, after a long run. 

Industrial Production increased 0.8% last month while manufacturing production increased 0.2%. Capacity Utilization ticked up to 75.5%.

We have a lot of Fed-speak today, and the World Economic Forum continues in Davos. There probably shouldn't be any market moving news, but be aware. Janet Yellen speaks at 3:00 pm EST. Lael Brainard said today that if Trump's fiscal policy ends up goosing the economy too much in the short term and doesn't do enough to help foster long-term growth, the Fed will probably react by raising interest rates sooner, and more. 

Trump Commerce Secretary pick Wilbur Ross heads to Capitol Hill for his confirmation hearing. 

World leaders at the Davos Forum are scratching their heads wondering what happened with the Brexit vote and Donald Trump. The consensus is unsurprisingly that income inequality is the problem and the answer is more wealth redistribution. The problem is that there is no appetite for tax increases when people's incomes are already squeezed. Meanwhile, here are the biggest risks for 2017, according to a survey of economists meeting there. 

Has technology changed the seasonality aspect to the real estate industry? At least in New York City, it may have. Note the Spring Selling Season more or less unofficially starts right around Super Bowl Sunday. 

JP Morgan is accused of racial bias in lending, however in this case it is at the wholesale level and their crime is allowing brokers to change their compensation, which allegedly ended up in minority borrowers paying higher rates and fees. Separately, Deutsche Bank settled for $7.2 billion for various and sundry mortgage violations. 

Here is a good list of common-sense items to tell your borrower about getting a mortgage. No, don't quit your job or buy a new car. Also, think twice about contesting the appraisal.