Interest rates may increase quickly

I came across the following article in which economist Ian Sheperdson makes the case that interest rates may need to move up much more quickly than many observers, including the Fed, expect:

For those planning a home purchase, this is something to watch very closely as it could have a significant impact on mortgage costs next year.

He thinks many of the elements of inflation have been mis-read, and that inflation may begin to increase at a much quicker pace than expected.  He point to fears of the slowdown in domestic manufactuing and the oil industry as a drag on inflation as overblown, with the oil sector making up less than 5% of the GDP, and manufacturing totaling 12%. Plus, he indicates much of the loss in these industry areas has been transferred to consumers in the form of lower gas prices, which could stimulate additional consumption across a broader range of sectors.

Second, he feels investors are mis-guided in thinking that a strong dollar will keep inflation in check. He reports that only 15% of core inflation is dollar sensitive; however, 41% of the index come from rents and 34% comes from services including medical.

I believe that Coloraod/Denver will be, as we have ben in the past – a canary in the coal mine.  Seeing the recent increases in rents/home prices in Denver, one certainly can see how this might influence core inflation. Economic growth across Colorado will also be a key bellweather as our State has more exposure to the oil industry than many others.  Watching the combination of GDP growth in Colorado, wage growth, retail spending and rent/housing price trends will be instructive as we head into next year.