Hello everyone. Welcome back to the Mortgage Rundown. Today we are going to talk about what’s happening with Interest Rates.
Another month rolls by and another month where we see inflation continuing to come down. Core year over year inflation, which was as high as 6.6% a year ago, is now down to 4.1%. If you look at the chart on your screen you will see how quickly it is coming down; and at least, visually, it appears to be a trend that will continue.
So, with inflation coming down so quickly, why are current rates continuing to go up?
Take a look at the 5yr Treasury and the fact that it has continued to climb for almost 6 straight months. It’s pretty incredible to see rates move higher this quickly at the exact same time that inflation is moving lower.
The reason mortgage interest rates continue to increase is mainly due to the jobs market. A while back, the Federal Reserve had predicted that this tightening campaign would push the unemployment rate above 4.1% already. Yet here we stand with an unemployment rate that has barely moved; currently sitting at 3.8%, which was the same as the month prior. In fact, it’s difficult to tell at this point if it will budge at all for the remainder of the year.
Additionally, it’s important to mention that the economy is also very strong. In fact, this week we saw retail sales well above consensus with a 0.6% increase in just one month.
At the end of the day the Fed has to look forward and their assessment is that inflation is slowing, but there is no guarantee it will stay at or move below their target with the economy and the jobs market so strong. The market has now adjusted to this reality, that the economy is very strong even with all of the moves the Fed has made so far. That’s going to keep rates on the higher side until we start to see some movement in the unemployment rate and/or GDP.
That’s it everyone from the capital markets desk this week. Thank you all for watching and have a great day.