Employment and Interest rates

At first blush the connection between the two may not seem obvious, but the amount of unemployed workers does have a significant impact on our overall economy and in turn interest rates.  More jobs, more confidence, more spending, but with that comes more inflation.  Each month our government releases unemployment and inflation data.  The current unemployment rate is at 10% and inflation to the consumer from the period of 10/08 to 10/09 is basically zero.   It is widely expected that with all of the government stimulus that inflation will pick up at some point next year and that the unemployment rate will peak maybe as soon as next summer.  Although there are numerous other factors that impact interest rates historically the Federal Reserve has started raising rates 3-4 months after the unemployment rate peaks.  Interest rates also predict future economic growth and although I do not have a crystal ball the overall economy is showing some positive signs and sense that we will be in better shape 6 months from now.  All this being said I am of the opinion that rates will remain at these current levels ( Prime at 3.25% and 30 year fixed mortgage rates at or around 5%) for the next 4-6 months.  Once we get into the late Spring and early Summer of 2010 the risk of higher rates will continue to grow.   The more important question in my mind is not as much about when but by how much?

Tony Pigatti

Vice President Residential Lending

Archer Bank

Office #708-237-4049

Cell #630-254-8946

www.metrobankgroup.com

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