Velocity of Money

Velocity of money concept is not difficult. In simple terms: when you buy milk, the owner of grocery storee takes the profit and buys a couch, then the furniture store owner buys something else, etc.

So, the same money passes through the economy over and over again, triggering growth, jobsa, & inflation.

The latest Retail Sales Report shows the velocity of money effect has been stagnant...meaning thatgrocery store owner is not running out to buy a couch with his profit.

Once consumer spending starts increasing and the velocity of money does as well, inflation is likely to follow. This will be something to look for as the economy continues to stabilize.

Something else to look for is the approaching end of the Fed's Bond purchase program. Home loan rates have stayed historically low since the program began in January.

Here is another reason that would push Bonds down and mortgage rates up possibly in the future.

Bonds and rates did manage to end last week better than where they began, but there was a great deal of volatility along the way.