The latest comments from a Fed official have agency mREITs reeling in today's trade. Boston Federal Reserve President Eric Rosengren confirmed on Tuesday that the Fed believes total inflation, not the so-called core rate, is really what monetary policy should target over the long-run.
Rosengren expressed concern over continued high commodity prices, noting that "...it seems to be taking quite a long time to date for long-run supply and demand influences to rein in oil price increases."
Oil prices are at record highs near $139 a barrel, and the average cost of gasoline nationally has surpassed $4 a gallon for the first time. These trends put upward pressure on prices and raise the threat of inflation.
Investors now believe the central bank will leave benchmark rates on hold at their current 2% level. Tough talk on inflation from a string of Fed officials have also prompted the markets to begin pricing in an eventual rate hike, as early as October.
The agency mREITs reacted strongly to the threat of accelerated rate hikes. At last check, Annaly Capital (NLY), Capstead Mortgage (CMO), MFA Mortgage (MFA), Anworth Mortgage (ANH), and Hatteras Financial (HTS) were all trading lower by more than 5%.
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